Buy This, Not That: AI Fakes or Fortunes

Shah Gilani|January 3, 2024

Nearly every company is an AI company these days.

In the second quarter of 2023… the term “AI” was mentioned more than 7,000 times in earnings reports.

But smart investors know to look out for companies that are AI firms in name only… and to find the ones that are actually using the tech to gain an advantage.

That’s what I’m going to show you how to do in today’s Buy This, Not That video.

Just because a company says it’s using AI… doesn’t mean it’s riding the AI profit wave.

Watch today’s video to see what I mean… and what signs to look for. And get the ticker symbols of two stocks that are BUYS right now thanks to their AI tech.

Click on the image below to watch it.

 

Transcript

– Hi! Shah Gilani here with your weekly BTNT, as in Buy This, Not That. Got a lot of AI questions from a lot of you. AI this, AI that, what’s real, what’s not, what’s fake, what’s a head fake, and where’s it all going?

So I’m gonna take some of your questions and turn ’em into answers. The first one, a lot of you guys ask me about, and it’s funny, ’cause I’ll tell you why in a minute. Veritone, V-E-R-I-T-O-N-E. Symbol is VERI.

Now, I get why you’re asking about this, because it’s trading at a dollar 80. So it’s cheap people, it’s very cheap. It’s down from $11 at its high in 2023 to a dollar 80 and change. But that doesn’t tell the whole story.

Two years ago it was $20, slightly above, trading at a dollar 80. So yeah, it looks cheap, but what’s the real story here? Is it an AI player? No, it’s not.

It’s really a media buying company, people. Yeah, VERI is really a media buying company. Ad agency services, client partner referral, stuff like that, but now they got this thing. They now provide AI, and I’m reading off of their own information about what they do, provides AI computing solutions, transforming unstructured data into structured data, analyzing and optimizing data to drive…

What? Sales? It doesn’t even say. To drive things going forward. Come, on people. This is not an AI play.

The stock has gone up and down and down for a reason, because it looked like it was going to be a player in that space. It’s not. It’s using AI as one of these head fakes. Like, yeah, we’re going to use AI to do media buying, selling, we’re going to use it with advertisers.

Yeah, they can and they will incorporate it as best they can, but this is not gonna move the needle on the bottom line, not for a long time. Maybe not ever for this company. So, not, do not buy this. It’s a waste of money.

At a dollar 80, it looks cheap for a reason. The only thing that’s got going for it is 16% short a float. That’s it. So if you wanna play it for a pop, maybe buy some options around earnings or something.

Buy some calls, cheap calls or call spread, but don’t own this. Worthless in my book. Next up is the opposite end of the spectrum. This is Super Microcomputer, SMCI.

Now, a lot of you asked about this, and I’m not even sure why, because maybe you’re wondering whether you should spend the money at $284 a share. The answer is yes, it’s a buy. I think that SMCI is a buy here, because first of all, you can buy fractional shares, so you don’t have to even buy, you know, one share, you can buy however many you can, however many. You can buy a pro rata piece of SMCI for whatever money you wanna spend on it, okay?

Fractional shares. It’s the bomb, people. So don’t think, oh yeah, I can’t buy a thousand shares, I don’t have the kind of money. You could buy whatever capital allocation you want to SMCI because of fractional stress, and I like it.

I think it’s a buy down here. This is a high-performance server storage solutions company. They have these super cool blade servers and stuff is modular, it’s just doing, it does everything right. It’s a big company, people.

It’s got revenue of $7.39 billion in trailing 12 months. Profit margin, 8.29%. It’s a real company, makes real money.

Amazing. $543 million in cash, only 172 million in debt. Super solid. Their operating cash flow is fantastic.

The trailing 12 months, operating cash flow is $620 million. So, very well run. And at the same time, you got 10% short of flow, which, I don’t quite understand why people would be shorting this one, but they do. So as far as SMCI goes, it’s a buy.

Look, it’s down a little bit. Again, it’s trading at 284. I think it’s gonna head back up. I like the stock here, I think it’s a good hold.

Eventually they’re gonna start to, I think, pay some dividends, but SMCI, I like it here in that space, because as far as AI goes, they are serving the providers of AI. They’re serving everyone whose needs are all about the new chips in the new servers that SMCI is all about in terms of those data centers and the solutions that they have. So SMCI, it’s a buy. Next up, Lemonade.

Yes, you know, Lemonade. LMND. Now, this one is another one I get, because everyone thinks it’s cheap. Is it a buy down here?

First of all, they’re in the insurance business. They’re not in the AI business. So what do they do? They do everything from personal, stolen, damaged property, personal liability, and now they say that they are renowned, yes, their words, renowned for leveraging AI to enhance and improve customer experience.

That’s not moving the needle in their profitability, and their profitability stinks. So this is cheap at 16.45, people. If you look at a chart for 2023, this thing was like a roller coaster and ended up nowhere.

On a three year basis, it’s down from $188 to 16.45. It’s cheap for a reason, okay? Don’t waste your money on this. It’s just, it’s not an AI play.

It’s not. It’s cheap for a reason, people. It’s not gonna get a boost from AI, so don’t count on that. Lemonade, not.

Next up, Fortinet. Now, Fortinet, symbol FTNT, is a cybersecurity company, and it really came into everyone’s purview during the pandemic. It was one of those hot stocks in the pandemic. Pretty much lost a lot of love lately, has gapped down a couple times on some earnings misses and I like it down here.

I think it’s a buy. I think Fortinet FTNT is a buy down here because it’s a solid company. First of all, I love the cybersecurity space. Now, Fortinet has been beaten up ’cause it’s missed earnings.

They also got beaten up in the last quarter because they gave disappointing forward guidance for Q4, so we’ll find out when the Q4 numbers come out how badly they disappoint, but the stocks been beaten up. There’s a couple of big gaps there, and I like buying undervalued companies that I think have a turnaround possibility in terms of the stock. The business is fine, the revenues area, everything’s coming off a little bit, but you know what, there’s a lot of competition in that space. But Fortinet is well placed and I think it’s a good value down here at 57 change.

It’s down from 81. I think this is a 25% gainer this year, and anytime you can lock in 25% gain, I dunno about lock, but I would say loaded for a potential 25% gain and possibly more in Fortinet. It’s a buy to me, just all around buy. $5.17

billion in revenue. 2200 a quarter percent profit margin, people. This is a real deal company that’s using AI in cybersecurity. Yes, it’s a buy here.

Last but not least, Upstart Holdings. You guys sometimes are so predictable. Yes, it’s cheap. I hear you, it is cheap.

It’s Upstart Holdings, UPST, trading around $36 and change. It’s cheap. It’s cheap because it’s down from $160. Yeah, it’s really cheap if you look at it on that basis.

Two years tells a story, down from 160 bucks. A rollercoaster this year. Sideways, lot of nothing. Now, in this space, in the AI-related space, it should have had a good year.

But really, what does it do? It’s a platform, it’s a lending platform that aggregates consumer demand for loans and connects to AI-enabled banks and credit unions. So they’re saying they use AI to aggregate demand for loans and then pass it on to AI using banks and credit unions. There’s a lot of AI in there, but really, how much are they using AI?

And hasn’t made much of a bit in the difference of their business and their profitability, so not, people. Don’t fall into the UPST trap. It’s the same kind of trap as Lemonade, it’s the same kind of trap as Veritone. This is just not a real AI story.

Everyone’s gonna be using AI way they can, except when these companies are marketing themselves as being the future or the leading edge of AI, to me, that’s patently nonsense. I have other words for it, but yeah, it’s kind of nonsense. It’s a head fake. So, far as upstart goes, $3 billion market cap, pretty decent revenue, 5.45

million. Profit margin is negative 46. Now, if you’re so hot in AI and you’re using AI to make loans and find the best customers and the best prospects that aren’t gonna default and all that good stuff, you’d be making a lot of money. But they’re not.

Profit margin is horrible. Companies not making money. Even the basis is losing money. So guess what?

Not. There you have it this week. You know what I like? I like Fortinet down here.

Yeah, I like buying some stocks that are beaten up a little bit, and Fortinet’s beaten up. I like Super Microcomputer. Yes, I know it’s expensive, but I like it here. Don’t like Veritone, don’t like Lemonade, and don’t like Upstart Holdings.

There you have it this week. Catch you guys next week. Cheers!