We recently compiled a list of the 10 Worst Artificial Intelligence Stocks to Buy Under $10. In this article, we are going to take a look at where Clarivate Plc (NYSE:CLVT) stands against the other worst AI stocks to buy under $10.
With technology evolving at a dynamic speed, many companies have changed their way of carrying out operations as they focus on integrating AI into their complex and day-to-day activities. Integration of AI into business operations requires significant investment in infrastructure and specialized talent. Experts believe that 2022 was the year in which generative artificial intelligence (AI) exploded in the public’s consciousness, and in 2023, the technology started to take root in the business world.
Therefore, 2024 and the upcoming years are expected to be critical years for the future of Al, with researchers and enterprises planning to integrate this revolutionary technology into their operations. Some of the current AI trends that are expected in the upcoming years include multi-modal Al, smaller language models and open-source advancements, GPU shortages, cloud expenses, regulation, copyright, and ethical AI concerns, among others.
Surge in Al Adoption
As per the McKinsey Global Survey on AI, ~65% of respondents have highlighted that their organizations continue to use gen AI, nearly double the percentage compared to the survey conducted earlier. Organizations have been seeing strong benefits from the use of generative AI, reporting both cost decreases and revenue jumps in the segments using AI technology.
The interest in gen-AI seems to have brightened the spotlight. McKinsey mentioned that, for the previous 6 years, adoption of AI by respondents’ organizations was hovering at ~50%. However, this year, the survey revealed that adoption increased to ~72%. Notably, the interest has been global in scope. The company’s 2023 survey highlighted that AI adoption didn’t reach 66% percent in any region. However, this year over two-thirds of respondents in nearly every region mentioned that their organizations are deploying this transformative technology. Industry-wise, the strongest increase was seen in professional services.
AI’s rapid evolution and its potential to shape the future continue to revolutionize several industries throughout the globe. As per a survey published on Forbes Advisor, the most commonly used AI cases in businesses consist of customer relations, cybersecurity, fraud management, digital personal assistants, inventory management, content production, and others. When discussing leveraging the top AI trends, businesses continue to rely on predictive analytics to make strategic decisions. For example, using predictive analytics in the manufacturing industry can help in predicting unexpected machine failures and costly breakdowns.
Another factor because of which AI has seen increased adoption is the deployment of multi-modal Al. It leverages machine learning trained on multiple modalities, like speech, images, video, and traditional numerical data sets. As a result, it helps in creating holistic and human-like cognitive experiences.
Investments in Al
Al investments have been ramping up at an unmatched speed. As per Goldman Sachs Economic Research, global investment in AI technologies should touch $200 billion by 2025. Making investments in generative AI provides potential economic growth and improves labor productivity by ~1% annually. Additionally, the investment in AI can peak as high as ~2.5% to ~4% of GDP in the US and ~1.5% to ~2.5% in other AI leaders.
Global corporate investment in AI saw a strong increase over the past decade. A Stanford University analysis estimated that the sum of assets and acquisitions from minority stakes, private investments, and public offerings came in at $934.2 billion from 2013 to 2022. Moreover, recent investment peaked in 2021, reaching ~$276.1 billion with the evolution of ChatGPT.
As per EY’s recent survey, ~30% of respondents highlighted that their business is planning to invest at least $10 million in AI next year. This demonstrates an increase from the current level of 16%. With the transition to the next phase of full-scale AI integration, leaders are required to develop a holistic strategy that recreates the entire enterprise ecosystem to create an AI-centric business model.
Our methodology
We compiled an initial list of 25 possible stocks by sifting through online rankings and ETFs. We then picked the 10 stocks that were the least popular among hedge funds and were trading at less than $10 per share. Finally, the stocks were ranked in the descending order of their hedge fund sentiment, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Clarivate Plc (NYSE:CLVT)
Number of Hedge Fund Holders: 27
Share Price As On September 19: $6.97
Clarivate Plc (NYSE:CLVT) is an information service and analytics company, which serves the scientific research, intellectual property, and life sciences end-markets. The company’s Data Science team has implemented AI across the portfolio to enhance their tools and solutions. It recently announced an agreement to acquire the substantial majority of assets of MotionHall, which is a Silicon Valley tech start-up catering to the life sciences with industry-vertical AI solutions.
Clarivate Plc (NYSE:CLVT)’s shares have earlier struggled mainly because of high levels of debt as a result of M&A activity over the past couple of years. Also, the lack of sales growth together with pressures on the margins continue to make its outlook uncertain. The company’s operations were impacted mainly by leverage and capital allocation decisions. Moreover, due to macroeconomic factors and product challenges, Clarivate Plc (NYSE:CLVT)’s subscription growth in life sciences and IP segments is expected to be impacted. Apart from increased operating expenses (which might result in lower profit dollars and margin), the impact of divestitures and acquisitions (like Valipat) might weigh over its revenues and profits.
On the other hand, Wall Street believes that Clarivate Plc (NYSE:CLVT) should be aided by a positive turnaround at Derwent with expanded search capabilities. The market is quite optimistic about the launch of new products such as the Epidemiology Intelligence platform. Also, growth in annual contract value (ACV) is expected to be visible next year due to new product releases.
Clarivate Plc (NYSE:CLVT)’s focus is now on a balanced approach to capital allocation, consisting of share repurchases and M&A to drive growth. The expectations of driving profitable growth coupled with its strong ability to control costs relative to its revenue should continue to act as tailwinds for the company. The company’s customers are responding positively to its operational and product improvements, leading to improved renewal rates and new customer wins. This should result in organic growth in 2H 2024. The company is in the portfolios 27 hedge funds, as per Insider Monkey’s 2Q 2024 database.
Investment management company Cove Street Capital recently released its second quarter 2024 investor letter. Here is what the fund said:
“We also added a position in Clarivate Plc (NYSE:CLVT), a data services provider that operates across academic research, intellectual property, and life sciences. We came to the investment from cross-work in another holding, Research Solutions (ticker: RSSS). Ultimately this company sucks in data from participants in the industry, aggregates it, and provides value added services and tools back to those industry participants. The power is in providing customers access to the aggregate. This was a private equity roll-up of a bunch of different data assets that paid too little attention to product innovation, leading to a period of stagnating growth and repeatedly missing guidance. The business of selling many tools and services on a pile of fixed cost assets (data) remains tremendous as can be seen by Clarivate’s mid-to-high 30% EBITDA margins and strong returns on invested capital. With new management and board members in place and 18 months of an “investment cycle” under their belt, we view the risk/reward of CLVT to be favorable at these levels, with a strong upside case if they can reinvigorate growth to their target levels.”
Overall CLVT ranks 7th on our list of the worst AI stocks to buy under $10. While we acknowledge the potential of CLVT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CLVT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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