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 DLocal Limited (NASDAQ:DLO) 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).
A modern payment processor with illuminated buttons in a busy financial district.
DLocal Limited (NASDAQ:DLO)
Number of Hedge Fund Holders: 19
Share Price As On September 19: $8.62
DLocal Limited (NASDAQ:DLO) operates a payment processing platform worldwide. Microsoft and DLocal Limited (NASDAQ:DLO) announced a landmark partnership to integrate cutting-edge Artificial Intelligence (Al) solutions in the Fintech sector.
Bears believe that the shares of DLocal Limited (NASDAQ:DLO) are expected to be impacted by the challenges around the potential for merchant renegotiation, required investments, and volatility in specific markets where the company operates, mainly Argentina and Nigeria. In the recent past, the company’s stock price was pressured mainly because of decelerating growth rates and uncertainty about its foreign fintech businesses. DLocal Limited (NASDAQ:DLO) is also challenged by risks stemming from currency devaluation, mainly in markets such as Nigeria and Argentina. DLocal Limited (NASDAQ:DLO)’s exposure to geopolitical risks might weigh over its business performance.
That being said, experts believe that DLocal Limited (NASDAQ:DLO)’s growth prospects stem from strategic initiatives that are aimed at capitalizing on emerging market opportunities. Its revenues are expected to be aided by a well-diversified merchant and geographic base. Some of the primary tailwinds include its focus on key metrics such as gross profit growth, diversified business verticals, and strong relationships with major tech companies. These drivers are further bolstered by the company’s healthy balance sheet position and strong FCF.
As of June 30, 2024, it had US$531.6 million in cash and cash equivalents, which includes US$186.2 million of own funds and US$345.4 million of merchants’ funds.
The long-term outlook for DLocal Limited (NASDAQ:DLO) is supported by its focus on TPV growth and increasing share of wallet. Also, Wall Street is optimistic about its recent partnership with Microsoft. By offering localised and flexible payment solutions, DLocal Limited (NASDAQ:DLO) will make sure that Microsoft’s customers in emerging markets have access to efficient payment methods.
Polen Capital, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“DLocal Limited (NASDAQ:DLO), a payments processing company headquartered in Uruguay saw further weakness after reporting disappointing first quarter results. While payment volumes and revenues grew 49% and 34%, respectively, in 1Q 2024, gross profit only grew 2% due to elevated processing costs. The company has also invested more in building out its scale and functionality, which further weighed on profitability. Longer term, as one of the leading emerging markets payments processing companies, we believe dLocal can continue to see attractive growth and improve profitability under a highly-regarded management team.”
Overall DLO ranks 5th on our list of the worst AI stocks to buy under $10. While we acknowledge the potential of DLO 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 DLO 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.
