Why this AI stock has fallen 96%


Given the growing excitement around artificial intelligence (AI) and its rapid expansion, it makes sense to keep an eye on stocks in this sector, such as Appen (ASX: APN), which I have been doing.

According to its website, Appen empowers companies to seamlessly transition from pilot to production 3.4 times faster. It also states it has comprehensive solutions tailored to every phase of the AI journey.

Being in such an exciting growth area, you would think Appen's share price would be booming, but instead, it has been falling over the past 36 months. Appen's shares hit an all-time high of $42.44 in August 2020 and three years later they closed at $1.48 at the end of August 2023.

appen share price artificial intelligence

Given this, you may be asking why I have been interested in this stock.

As you know, I like to take a contrarian approach to investing because what goes up must come down and when looking at good companies what goes down must also rise at some point. As such, I believe Appen will turn to rise strongly, but the big question is when.

On Monday Appen released its results for the 2023 half year and it's easy to see why its share price has been falling. In fact, after releasing its report this week, Appen fell more than 30% as revenues were down 24% compared to the first half of 2022.

So, the numbers don't look good, but if we dig a little deeper, we find that Appen has no debt and it is cashed up after a $60 million capital raising in May.

While I am not suggesting Appen is a buy, it is worth watching and waiting, as I believe it is at or very near its bottom. We all know that it's always darkest before the dawn and often I have seen good companies like Appen rise like a Phoenix out of the ashes.

That said, I caution everyone to be very patient and wait until it finds its bottom and starts to rise before entering. To jump too early could end in disaster.

The best and worst performing sectors this week

The best-performing sectors include Materials, Healthcare, Consumer Discretionary and Financials, as they are all up more than 3%.

The worst-performing sectors include Energy, which is just in the red for the week followed by Consumer Staples and Communication Services, as they are both up more than 1%.

The best-performing stocks in the ASX top 100 include Mineral Resources up more than 9% followed by Harvey Norman and IGO, which are both up more than 1%.

The worst-performing stocks include Whitehaven Coal down more than 6% followed by Qantas and IDP Education, which are both down more than 5%.

What's next for the Australian stock market

After falling for 22 trading days and nearly 5% in price, this week the All Ordinaries Index has seen a big turnaround, as it is up nearly 3% since last Friday's low.

Last week I mentioned that the downward momentum in our market was around 50% slower than the prior move up, which I indicated was positive given the bears were not really committed to the down move.

The story has now flipped as price has risen for three days this week and recovered what it took to fall over the prior seven days.

I also mentioned last week that it was possible that this week could be a turning point and that if it turned, it would rise consistently over the coming month or so.

While I am not getting too excited just yet, the signs are good. That said, it's still best to have the mindset that the market could fall because as we have seen so many times in the past three years, just when think the market is bullish it does the opposite. Therefore, I strongly recommend you have a stop loss on every stock you own.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.