We recently compiled a list of the 10 Worst Artificial Intelligence Stocks Under $50 According to Short Sellers. In this article, we are going to take a look at where Fastly, Inc. (NYSE:FSLY) stands against the other AI stocks under $50.
The US artificial intelligence (Al) market size was pegged at US$123.07 billion in 2023, which should be able to compound at ~19.3% over 2024 to 2034 to touch US$851.46 billion, according to Precedence Research. While North America held over ~36.90% of the market share in 2023, the Asia Pacific market is anticipated to expand at the fastest CAGR of ~19.8% between 2024 and 2034.
The increased demand for automated and technologically advanced hardware and software products throughout end-use verticals, along with favorable government policies, continues to encourage the industries in North America to adopt Al. Over the past few years, significant investments by the tech giants in R&D fuelled technological advancements in various industries. Rapid penetration of digital technologies and the internet continue to contribute to the strong outlook for the global artificial intelligence market.
Latest Trends and Themes About Al
The 2 most important trends that stood out in 2023 were generative Al and electrification and renewables. As per McKinsey, the former saw a spike of ~700% in Google searches from 2022 to 2023, together with a strong increase in job postings and investments. This highlights the pace of technological innovation. Between 2023 and 2024, the size of the prompts that large language models (LLMs) can process, also known as “context windows,” rose from 100,000 to 2 million tokens. Electrification and renewables were another trend that saw the highest investment and interest scores.
Even though several trends saw lower investment and hiring in 2023, experts believe that the long-term outlook remains strong. The continued focus on innovation by the enterprises and elevated interest in harnessing such technologies continue to demonstrate strong future growth prospects.
Innovation has widely been accepted in 3 trends, that form part of the “Al revolution” group. These include generative Al, Applied Al, and Industrializing machine learning. While Gen Al helps in creating new content from unstructured data (like text and images), applied Al helps in leveraging ML models for analytical and predictive tasks. Finally, industrializing machine learning ramps up and derisks the development of machine learning solutions. McKinsey reported that Applied Al and industrializing machine learning, aided by strong interest in gen Al, saw significant uptick in innovation. This was reflected in the surge in publications and patents between 2022 to 2023.
At the same time, electrification and renewable energy technologies are capturing strong interest, demonstrated by the news mentions and web searches. Their popularity stems from a surge in global renewable capacity, critical roles in global decarbonization efforts, and heightened requirements of energy security amid geopolitical tensions and energy crises.
Potential for Artificial Intelligence- Applied Al, Industrializing Machine Learning, and More
The impact of analytical Al technologies, such as applications of machine learning (ML), computer vision, and natural language processing (NLP), has been growing throughout sectors. McKinsey research believes that Al applications have the potential to unlock an economic value of $11 trillion – $18 trillion annually.
The Regulators and policymakers continue to take note of Al’s increasing impact. For example, the European Parliament passed the unified EU Artificial Intelligence Act. Regarding real-life uses, Saudi Aramco was able to develop an Al hub to efficiently analyze over 5 billion data points per day from wellheads in the oil and gas fields.
Industrializing machine learning (ML), widely known as machine learning operations (MLOps), refers to the process of scaling and maintaining ML applications within enterprises. MLOps remain critical in developing, deploying, and maintaining gen Al solutions. This will enable ML algorithms to be dispatched quickly and effectively. Some sectors which are adopting industrialized ML practices are energy and materials and technology, media, and telecommunications.
Our methodology
To list the 10 Worst Artificial Intelligence Stocks Under $50 According to Short Sellers, we added 20 AI tickers to the Finviz screener and sorted them by short interest. Next, we narrowed our list of stocks by selecting the ones having high short interest and share prices below $50. Finally, the stocks were ranked in ascending order of their short interest.
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).
A technician pointing at a projection of the company’s geolocation software.
Fastly, Inc. (NYSE:FSLY)
Share Price as of September 20: $7.23
Short % of Float (As of August 30): 11.03%
Number of Hedge Fund Holders: 23
Fastly, Inc. (NYSE:FSLY) is engaged in operating an edge cloud platform for processing, serving, and securing customer applications in the US and internationally. Fastly AI Accelerator is its first AI solution which has been designed to create a better experience for developers by helping to improve performance and reducing costs across the use of similar prompts for LLM apps.
Bears believe that Fastly, Inc. (NYSE:FSLY)’s stock is expected to be pressured by its near-term risks such as decelerating growth in the company’s largest customers and share loss in delivery. Also, Fastly, Inc. (NYSE:FSLY) has been experiencing pricing pressure in its delivery business. The expected weakness, mainly in the top 15 customers, is primarily attributed to lower renewal rates not being accompanied by historical traffic increases.
Also, the company’s largest customers do not have minimum commitments embedded in contracts. This increases the risk of traffic being diverted to lower-cost providers.
However, Wall Street analysts believe that Fastly, Inc. (NYSE:FSLY)’s modern version of a content delivery network remains superior to legacy competitors’ and should be preferred by developers. Moreover, the company continues to actively pursue restructuring to reduce costs, anticipating to save $14 million in operating expenses in 2H 2024. Fastly, Inc. (NYSE:FSLY) aims to achieve breakeven operating income and FCF by 2025. While Fastly, Inc. (NYSE:FSLY) continues to invest in go-to-market strategies and technology innovation to support long-term growth and profitability, it also remains focused on diversifying its customer base. Also, the company continues to implement a new engagement strategy, focused on driving additional commitments from customers.
As of the close of 2Q 2024, 23 hedge funds held stakes in Fastly, Inc. (NYSE:FSLY), as per Insider Monkey’s database.
Overall FSLY ranks 8th on our list of the worst AI stocks to buy under $50. While we acknowledge the potential of FSLY 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 FSLY 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.