4 Stocks Likely to be Hurt by European Union's Limit on AI Usage
The European Union’s (EU) growing efforts to regulate Artificial Intelligence (AI) have been taking a toll on the technology companies.
AI, which has created a niche in this data-driven world owing to its automation capabilities, poses risks to society. Despite several benefits to mankind, aggressive usage of AI, as well as generative AI, carries severe economic implications. It may harm fundamental rights and national security, as well as lead to job loss.
Considering the aforementioned facts, not only the EU but also other governing bodies have realized the utmost need to regularize this technology.
EU’s Aggressive Stance
Recently, the EU marked itself as the first major world power to enact laws governing AI. The European Parliament passed a draft law known as the A.I. Act in June 2023 and the EU lawmakers reached a provisional deal on it on Dec 8, 2023.
The A.I. Act limits the usage of AI and focuses on the technology’s risky benefits being availed by various companies and governments. The usage of AI in biometric surveillance, facial recognition software, deepfakes-generating software and most importantly, chatbots will be restricted under this act.
Moreover, companies making or using these AI software will be required to give clarification. Chatbot makers such as Microsoft-backed OpenAI and Alphabet’s Google, among others, will have to be transparent about their AI models.
Upon violating rules, companies will be charged a penalty of up to seven percent of their global sales.
We note that the A.I. Act is likely to hurt the prospects of big tech companies that have driven the AI revolution so far, as well as small tech companies with exposure to European countries in the days ahead. In this backdrop, we have provided a sneak peek into four such companies:
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Box BOX, which has lost 15.8% year to date, is making concerted efforts to enhance its content creation and publishing offerings on the back of AI-infused capabilities. Its partnership with CrowdStrike to leverage the latter’s AI-powered platform, CrowdStrike Falcon remains noteworthy. Further, it teamed up with Microsoft to introduce a new plugin for Microsoft's AI workplace tool, Microsoft 365 Copilot, enhancing the usefulness of Box files within organizations.
However, Box, which is expanding its presence in Europe, will likely suffer from the enactment of the latest A.I. Act. The company has also been subjected to the adverse impacts of Brexit, as well as labor regulations in Europe.
BOX currently has a Zacks Rank #3 (Hold) and a VGM Score of C. The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $1.70 per share, which has moved 6.1% downward over the past 60 days.
C3.ai AI, which has gained 188.4% on a year-to-date basis, is gaining from increased demand for its Enterprise AI software. Further, solid momentum across C3 Generative AI and predictive maintenance services remains a plus. Moreover, the C3 Generative AI platform is enabling the company to acquire top-notch new customers while expanding its associations with existing customers.
However, most of the company’s international operations are based in Europe, which makes it vulnerable to the impacts of the EU’s stringent activities to regulate AI technology. Its revenues from Europe, the Middle East and Africa region accounted for 18% of total revenues in fiscal 2023.
C3.ai currently has a Zacks Rank #4 (Sell) and a VGM Score of F. The Zacks Consensus Estimate for fiscal 2024 loss is pegged at 63 cents per share, which has expanded from 42 cents over the past 60 days.
Duos Technologies Group DUOT is leaving no stone unturned to bolster its AI capabilities. It is well-known for its AI-powered technology solutions for rail, transit and transportation systems. It leverages machine vision and AI to identify potential problems and develop predictive maintenance models for rail systems.
However, the company may have to suffer with its plans to expand its footprint in European countries due to the fact that the EU is getting nastier for AI companies.
DUOT has returned 45% year to date. It currently has a Zacks Rank #4 and a VGM Score of F. The Zacks Consensus Estimate for 2024 loss is pegged at 65 cents per share, which has expanded from a loss of 39 cents over the past 60 days.
SoundHound AI SOUN, which has returned 26.6% year to date, provides artificial intelligence solutions for voice-enabled applications and devices. It leverages AI to recognize, understand and respond to human speech and sounds. The company is experiencing billions of user interactions thanks to its voice AI-powered millions of apps, TVs, cars and IoT devices.
However, SoundHound AI has significant operations in Europe where it generates most of its international revenues. So, it may have to face the impacts of the A.I. Act upon implementation. It is already facing the consequences of the EU’s General Data Protection Regulation.
SOUN has a Zacks Rank #3 and a VGM Score of D. The Zacks Consensus Estimate for 2024 loss is pegged at 23 cents per share, which has expanded from a loss of 22 cents over the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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C3.ai, Inc. (AI) : Free Stock Analysis Report
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