Here are 1 artificial intelligence (AI) stocks that I avoid like the plague

2024 has gotten off to a roaring start in the stock market. The S&P500 is up 7%, while technology is heavy Nasdaq Composite is up 6% as the euphoria of artificial intelligence (AI) continues to dominate.

However, one company that seems to have lost its groove is Snowflake (NYSE: SNOW). Shares of the database management company are down 21% so far this year. The reason? Concerns are growing that Snowflake has fallen behind in the AI ​​gold rush.

Let's take a look at Snowflake's current status and analyze why this once high-flying stock could continue to spiral downward.

A fall from grace

In September 2020, Snowflake caused quite a stir after its highly anticipated initial public offering (IPO). In fact, Snowflake was the largest software IPO of all time.

In the months following his debut on the New York Stock ExchangeSnowflake's market capitalization skyrocketed to more than $100 billion. But after peaking at $123 billion at the end of 2021, Snowflake is now worth just over $50 billion.

SNOW market cap chartSNOW market cap chart

SNOW market cap chart

The competition is winning so far

Over the past year, AI has been one of the dominant themes driving the capital markets.

Many of Snowflake's software-as-a-service (SaaS) peers, such as Palantir, Service now, Data houndAnd MongoDB have made remarkable strides in AI, resulting in their stocks soaring.

That hasn't been the case for Snowflake, which also experienced a sharp sell-off earlier this year following the abrupt departure of CEO Frank Slootman. Snowflake investors have little reason to cheer.

SNOW graphSNOW graph

SNOW graph

One of Snowflake's main competitors is AI and machine learning startup Databricks, a private company with members of the “Magnificent Seven” program. Nvidia as one of its investors.

Earlier this month, Ali Ghodsi, CEO of Databricks, spoke to Snowflake during an interview with Bloomberg. Ghodsi stated that Snowflake was “basically not doing AI at all”.

While this is just one competitor's opinion, Ghodsi's reasoning was interesting. He further explained that the primary functionality of Snowflake's data warehousing software is asking questions about the past. However, he alludes to AI wanting to be a “predictive” tool.

It's hard to argue with Ghodsi. While I've previously stated that I don't see Snowflake as a direct threat to Palantir, the two companies are often compared in the enterprise software world.

2023 was a milestone year for Palantir: the company's successful push into AI helped generate strong growth at both the top and bottom end.

With investors hungry for Snowflake, let's take a look at some of the moves the company is making and what it could mean in the long run.

The snowstorm is far from over

While Slootman's departure was shocking, there was a silver lining. Called snowflake Sridhar Ramaswamy as new CEO. His previous role at the company? Senior Vice President of AI.

Ramaswamy joined Snowflake in May 2023 after the company acquired his AI start-up Neeva. Before co-founding Neeva, Ramaswamy worked for 15 years Alphabet growing its advertising business into a $100 billion empire.

Overall, I am cautiously optimistic about this change in leadership. Ramaswamy has experience in bringing new products and applications around AI to the market.

Since Ramaswamy took over as CEO at the end of February, and Snowflake has already made an important announcement. In late April, the company released its own major language model, called Arctic. According to the press release, Arctic is most comparable to Meta's Llama generative AI model.

For now, I would sit on the sidelines and keep an eye on Snowflake. Given how volatile the stock has been and the evolving AI landscape, Snowflake could continue to decline if it doesn't start gaining ground against its peers.

While Ramaswamy could very well be an upgrade over previous management, but investors should wait for evidence that his vision is moving the company forward. Arctic's release clearly shows Snowflake's commitment to AI, but the question is whether such steps are simply too little, too late.

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Meta Platforms, Nvidia and Palantir Technologies. The Motley Fool holds positions in and recommends Alphabet, Datadog, Meta Platforms, MongoDB, Nvidia, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool has one disclosure policy.

Here are 1 artificial intelligence (AI) stocks that I avoid like the plague was originally published by The Motley Fool

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