Spring is here, and flowers are blooming. You know what that means: Time for a good old-fashioned round of spring cleaning.
With that in mind, here are three stocks that a panel of Motley Fool contributors are ready to say goodbye to this spring.
Image source: Getty Images.
Will the rise of AI mean the beginning of the end for Apple?
Jake Lerch (Apple): Now, don't get me wrong, Apple (AAPL +2.77%) has enjoyed a great run. It's the second-largest public company in the world for a reason, and I don't think its stock price is about to collapse.
NASDAQ: AAPL
Key Data Points
Yet however impressive its past performance, what matters to investors is how the company will perform going forward. And that's where I have concerns for Apple.
To start with, sales of the company's signature product -- the iPhone -- appear to have leveled off after years of growth. In 2023, Apple sold 231 million iPhones -- virtually identical to the number it sold in 2015. Moreover, iPhone revenue appears to have gone flat. The figure last year was $201 billion. That's down from $205 billion in 2022.
| Year | iPhone Unit Sales | iPhone Revenue |
|---|---|---|
| 2015 | 231.2 million | $155 billion |
| 2016 | 211.8 million | $136.8 billion |
| 2017 | 216.7 million | $141.2 billion |
| 2018 | 217.7 million | $166.2 billion |
| 2019 | 187.2 million | $142.3 billion |
| 2020 | 196.9 million | $137.3 billion |
| 2021 | 242 million | $191.9 billion |
| 2022 | 232.2 million | $205.4 billion |
| 2023 | 231.3 million | $200.5 billion |
But what about Apple services? Won't the company's growing software division lead to its next phase of growth?
Perhaps. Apple's services segment does now account for almost 20% of the company's total revenue. However, software has never been Apple's bread and butter. Indeed, its long-standing policy of bundling its software and hardware has dampened its growth -- dating all the way back to the 1980s, when the company wouldn't license the Mac operating system to other computer makers.
What's more, the real question is whether Apple can compete over the long term with companies that have created iconic software, social media, and web apps -- Microsoft (Windows and Office), Alphabet (Google), Meta Platforms (Facebook), and Amazon (Amazon.com).
Finally, the rise of artificial intelligence (AI) raises another question for Apple: What happens to the smartphone business as the use of AI systems keeps expanding? Will anyone want to pay $1,000-plus for a smartphone if everything from TVs to cars to wearables to thermostats is enabled with AI-powered features?
In short, Apple is at a crossroads. And while I certainly wouldn't bet against the company, I do think investors can find many alternatives with fewer question marks right now -- think Microsoft, Nvidia, and Amazon. And that's why Apple is on my spring cleaning list.
Having "AI" in its name may not be enough to save this stock
Will Healy (C3.ai): At first glance, C3.ai (AI +8.09%) looks like a stock to buy rather than avoid. Given the popularity of generative AI stocks in recent months and the enterprise software company's ability to attract high-profile clients such as the U.S. Army and Baker Hughes, it seems like it should be on a long-term uptrend.
NYSE: AI
Key Data Points
However, upon closer inspection, investors will see serious issues. Though it is successfully attracting enterprise AI clients, the company's strategy appears excessively tied to tech trends. It went by names such as C3 Energy and C3 IoT before it went public in 2020. Those frequent name changes may make investors wonder how committed the company is to its focus on AI.
Secondly, based on its finances, there's some question about whether it can ever become profitable. For the first nine months of its fiscal 2024, C3.ai reported revenue of $224 million, up 15% versus the same period in fiscal 2023. (Its fiscal Q3 ended Jan. 31.)
Unfortunately, its operating expenses (which do not include its $127 million cost of revenue for the period) amounted to $363 million. Consequently, its net loss for the first three quarters of fiscal 2024 came to $207 million.
Worse, C3.ai is not showing any signs it can grow its way out of this problem. For fiscal 2024, it forecasts revenue between $306 million and $310 million, which would amount to a 15% increase at the midpoint.
As a result, the stock has struggled. It had more than doubled in value at one point last year before a dramatic pullback. Over the past 12 months, the stock is up about 10%, significantly lagging the S&P 500.
Furthermore, it trades at a price-to-sales ratio of 11. That multiple arguably makes C3.ai an expensive stock, particularly considering its financial struggles.
Ultimately, investors have numerous choices when it comes to investing in AI. Given the state of its finances, investors should probably consider selling C3.ai and putting their money into a faster-growing AI company that's on a path to sustained profitability.
Don't let greed ruin your stellar investment returns
Justin Pope (Super Micro Computer): I've been bullish about Super Micro Computer (SMCI +7.91%) in the past, and I still like the company over the long term. But Super Micro Computer has risen too high, too fast this year. Shares are more than 1,000% above their 52-week low -- a level of return that the broader market would likely take decades to produce.
NASDAQ: SMCI
Key Data Points
If you're sitting on a multibagger today, considering selling some of your stake would be wise. That doesn't mean there isn't much to like about Supermicro. Its modular server systems are in high demand due to the booming investments in artificial intelligence across the technology sector. The company's growth has accelerated to a triple-digit percentage rate, and management believes revenue will grow by over 200% year-over-year in the next quarter.
But stocks can be volatile, and the broader market has been running hot. The Nasdaq Composite index is up a smoldering 38% over the past year. Eventually, a pullback could pour cold water on share prices, and investors may start locking in some profits from their big winners. Has any stock run as high as Super Micro Computer? It would be hard to find one that has.
I'm not saying you should sell everything and run for the hills. However, greed can be a powerful emotion that works against investors. If you're sitting on huge gains, consider taking some profits. You can always look to reinvest when the market inevitably cools off.
