Too often, investors look for the easy way out when picking stocks to buy. Whether it’s trusting a stock broker’s advice, acting on a friend’s tip or even following the ideas of an online writer, investors want to avoid putting in the work to choose stocks to buy.
The debut of OpenAI‘s ChatGPT in November 2022 added a new wrinkle. That’s because artificial intelligence (AI) can do the work for you. In a matter of seconds, AI can analyze millions of data points before spitting out a list of stocks to buy that meet your criteria. And today there are dozens of AI chatbots to choose from!
But I still wouldn’t rely upon AI stock predictions for my portfolio. The results are far too important to leave to an imperfect technology prone to errors. It might be a useful tool to whittle down the universe of available stocks to a more manageable number, but investors still need to understand the business.
For example, Google’s (NASDAQ:GOOG, NASDAQ:GOOGL) Bard AI has a reputation for being good at picking stocks. So I asked it to find me three stocks with the potential to soar 1,000% in just 5 years. Now, that’s an unrealistic expectation, but even more fanciful is the three stocks Bard spat out to achieve those results. Here’s why I think the AI predictions are wrong.
Blink Charging (BLNK)
The premise behind Blink Charging (NASDAQ:BLNK) enjoying supercharged returns over the next few years is the growth of electric vehicles (EV). It means they are going to need places to recharge. Blink builds and operates EV charging stations across the country. It’s sold or deployed over 85,000 charging ports worldwide since 2009. Revenue is up 154% in 2023 to $98 million. As EV sales increase, why shouldn’t Blink Charging stock go stratospheric?
Competition is one. It faces a growing number of rivals, most of whom are better financed and have a more extensive network than Blink. ChargePoint (NYSE:CHPT), for example, has hundreds of thousands of charge ports.
Blink Charging is also losing money at an even faster rate than its growing sales. Year-to-date losses tripled to $184 million in the third quarter. It’s coming at a time when the EV market is slowing. Sales were up 42% in November, according to The Wall Street Journal, but well below the 74% notched in October 2022. Manufacturers are slashing prices to move cars piling up on dealer lots.
Fortunately, Blink Charging doesn’t have much debt, so it still has maneuverability, and its valuation is not overblown. Yet, in a high-inflation, high-interest rate environment, the EV market is not favorable. Building out a larger network of charging stations won’t be the growth business it has been. Expecting Blink to 10x in five years is just unreasonable.
Beyond Meat (BYND)
Plant-based meat alternative maker Beyond Meat (NASDAQ:BYND) is more likely to go out of business before it grows 1,000%, regardless of the time you give it. Sales fell again in the latest quarter, dropping 9% to $75 million. For the first nine months of 2023, they’re down 20%. Although international foodservice for the company continues to grow, the U.S. business is in free fall and is down 34% year-to-date.
Plant-based foods were more a fad than a trend. Maybe niche is a better way to describe it. And it was a very small one at that. While some people want meat alternatives, most Americans at least want real meat — not pea protein. Beyond Meat continues to slash its payroll to control costs. That can only go on for so long.
Beyond Meat is not a growth business. It’s one hunkering down to survive. It has over $1.1 billion in debt and just $217 million in cash. It managed to produce nearly $8 million in free cash flow (FCF) in the third quarter, but it slashed capital expenditures from $60 million last year to just $8.6 million this year. Beyond Meat also doesn’t expect to remain FCF-positive for Q4. It is a dying company, not one that can produce outsized returns.
Rocket Labs (RKLB)
Okay, I’ll admit I like Rocket Labs (NASDAQ:RKLB) as a stock pick. The satellite launch company is the second-most successful space venture behind SpaceX. It routinely launches rockets into space using its Electron rocket. So far, it’s put 172 satellites into orbit for commercial and government customers from its three launch pads in Virginia and New Zealand. Rocket Labs launched 10 rockets in 2023, beating last year’s record of nine.
Since its IPO in August 2021, however, Rocket Labs stock has been a dud, losing about half its value. Even so, the stock rose 46% in 2023. Most of those gains came in just the past week after Rocket Labs won a $515 million contract from the federal government. It will design, manufacture, deliver and operate 18 space vehicles. The launch is scheduled for 2027, and it will operate the satellites it puts into orbit until 2030.
Yet, as much as I like Rocket Labs, a 1,000% increase in 5 years means the stock would be worth over $60 a share. It currently trades around 11 times sales. Most companies in the aerospace and defense industry go for half that rate or less. If we give Rocket Labs a 5x PS ratio, it suggests the satellite launch stock will be doing about $5.7 billion in annual sales or growing revenue about 90% a year for 5 years.
I think we will see Rocket Labs grow, just not that fast. It’s another reason why I don’t trust AI stock predictions.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
