Risky AI Stocks: Why Investors Should Avoid SoundHound, BigBear.ai, Pony.ai
The artificial intelligence (AI) “spending boom” is fueling unprecedented growth in the stock market, but investors face significant risks. Several AI-focused companies are trading at unsustainable valuations, presenting potential pitfalls for those seeking long-term returns. This article examines three stocks—SoundHound AI, BigBear.ai, and Pony.ai—that warrant careful consideration, particularly for investors prioritizing capital preservation. While the AI market holds immense potential, these companies currently exhibit concerning trends that suggest they may not be safe places to invest, especially for those nearing retirement.
SoundHound AI: A Premium Price for Uncertain Growth
SoundHound AI (NASDAQ: SOUN) is a voice-enabled AI chat platform primarily used in restaurant drive-thrus and automotive applications. Despite a recent share price drop following a sales-driven, but ultimately loss-making, third-quarter earnings report—showing a substantial $109.3 million GAAP net loss alongside $42 million in revenue—the company’s stock is still trading at approximately 30 times its trailing sales. This represents a significantly higher valuation than industry leader Nvidia, which trades at 25 times sales. The primary concern is that SoundHound has yet to demonstrate the capacity to successfully expand its operations into new, lucrative industries. The company’s acquisition of Amelia, a customer-service focused software, hasn’t translated into immediate gains. Compounding this issue is the highly competitive landscape, with established players like Alexa posing a considerable challenge. The premium valuation suggests investors have high expectations, and the company needs a clear path to achieve sustained growth and profitability before the stock price stabilizes.
BigBear.ai: Declining Revenue and a Troubling Margin
BigBear.ai (NYSE: BBAI) offers a range of AI products, including data analytics and facial recognition software, and primarily serves the U.S. military and government security agencies. While the AI sector has experienced significant growth, BigBear.ai has struggled to keep pace. Revenue has been declining for three years, despite overall AI market expansion. Management’s fourth-quarter revenue guidance – between $24.6 million and $39.6 million – anticipates a continued downward trend, projecting a near-9.6% year-over-year revenue decline. The company’s gross margin, at just 22.4% in Q3 2025, is among the lowest in the industry, significantly lower than Palantir’s robust 82.5% gross margin. This shrinkage in margin is exacerbated by a declining backlog, increasing share dilution, expanding net losses, and accelerating operating cash burn. These factors combined indicate a significant deterioration in the company’s financial health. The valuation of 14 times trailing sales is excessive given BigBear.ai’s performance and the lack of a clear path to profitability.
Pony.ai: A New Arrival with Questionable Growth
Pony.ai (NASDAQ: PONY), a relatively new player in the autonomous vehicle space, went public less than a year ago. The company focuses on AI-powered robotaxi services and licensing revenue. While Pony.ai reported impressive 72% year-over-year revenue growth in its third quarter, driven by strong robotaxi service and licensing revenue, this rapid growth raises concerns. Its first comprehensive quarterly SEC earnings report, for Q4 2024, showed a sharp drop in revenue from $50.6 million in Q4 2023 to $35.5 million in Q4 2024. Notably, both 2023 and 2024’s Q4 represented the highest revenue quarters for the company of the year and accounted for 47% and 70.4% of overall revenue, respectively, indicating Q4 is a critical part of the company’s financial outlook. The key will be to determine if Q4 revenue increases or decreases relative to the prior year, assessing the company’s overall financial metrics. The company’s young status warrants caution, particularly for investors seeking established, reliable investments.
Cautionary Note for Retirees
Given the current risk landscape and the vulnerabilities within these AI-focused stocks, it’s crucial for investors, especially those nearing retirement and prioritizing the preservation of their savings, to exercise extreme caution. The rapid expansion in the AI sector is not without its pitfalls, and these three companies currently demonstrate significant vulnerabilities. The Motley Fool recommends avoiding investing in these stocks now. The stock advisor analyst team has identified 10 stocks that could produce monster returns, but SoundHound AI and BigBear.ai were not included in that recommendation.
