AI stocks have delivered the most gains on the way up. But as the pendulum swings the other way in 2025, they are now leading the way down. Most Big Tech stocks have crashed significantly, and AI-related startups have plunged even more.
The broader market outlook does not look good right now, and it’s not a good idea to ignore the trends and be left holding the bag as everyone else takes profits. There have been previous fears of a downturn and a recession, but this time it’s worth paying attention to bears as they now have macroeconomic data to back their claims.
The housing market is down. Unemployment has ticked up. There’s plenty of uncertainty with Trump’s tariffs policy, and jobs data also missed. To top it all off, the GDP is now expected to contract by 2.8% in Q1 2025. This is a perfect setup for something going wrong.
The market could still see a dead cat bounce, but the lack of any positive news about the economy will likely send it lower.
With that in mind, holding on to your speculative AI picks may not be a good idea. Here are three AI stocks to sell.
SoundHound AI (NASDAQ:SOUN) looks great on paper in a scenario where venture capitalists and investors on Wall Street both perpetually fund AI startups. Voice AI is still in its early stages, and companies haven’t gotten to the point where artificial intelligence is indistinguishable from humans when you speak to an AI voice agent.
However, the company looks much worse when you look at its fundamentals. It has great sales growth figures but has to weather tremendous losses to achieve those numbers. You’re paying 23 times sales for a company that reported a net profit margin of -728.63% in Q4 2024. And that’s after a 64% decline from its peak.
SoundHound still has a market capitalization of $3.2 billion, so the stock could easily fall over 80% from here if a downturn hits. Profitability is not in sight, and revenue growth is expected to decline below 30% next year. This stock is only investable during periods of mania, and that is not the case right now.
BigBear.ai (NYSE:BBAI) is down significantly due to the broader AI correction and due to its disappointing results in Q4 2024. This is a company that many bulls call “the next Palantir,” but that’s unlikely to be the case due to how unsustainable the business’ losses are.
Even if the report came in above analyst estimates, the stock would likely still fall as investors are now looking at fundamentals. That’s mainly where BigBear.ai’s weakness lies. The company reported just 8% revenue growth and a net profit margin of -246.5% in Q4 2024.
It had just $50 million in cash against $145 million in debt in Q4, and this is the same quarter where net losses were at $108 million and free cash flow was at -$18 million. Dilution is the only way BigBear.ai can continue to fund its operations, and if it dilutes in a period where investors are bearish on AI stocks, that’s twice the headache for shareholders.
Outstanding shares have already increased from 117 million in Q4 2022 to 251.6 million in Q4 2024. As cash runs out and the market cap goes lower, the dilution could hurt a lot more. The Altman-Z score of -3.12 implies a strong bankruptcy probability in the next two years.
C3.ai (NYSE:AI) was the most searched-after stock early on during the AI rally. It was the first thing that popped up when your average retail investor searched “AI stock.” As a result, it delivered multibagger gains despite having lower growth than many of its peers and substantial losses.
The virtue of having the AI ticker drove it, but it can now hurt the stock as the word AI warrants more scrutiny from Wall Street.
This is a very high-risk bet, though a bankruptcy risk is lower here. It has a cash pile of $724 million. That said, net losses came in at $80 million against $99 million in revenue in the latest quarter. The 3-year revenue growth rate remains negative at -1.7%, and the expected growth ahead is highly speculative.
C3.ai will likely trade near cash or even lower if a recession hits. Recent partnerships may also speed up cash burn, as the company itself expects “moderation” in its gross margins due to more costly pilots.
I wouldn’t hold it in a downturn.
