Outside the Box: If you’re investing in AI stocks, watch out for these revenue and earnings tricks

by | Feb 27, 2023 | Stock Market

The intrinsic value of a stock is the cash the company generates for its shareholders. During the dot-com bubble, most dot-com companies had no profits. If investors had bothered to notice this, they might have been skeptical rather than delirious. Instead, they focused on new metrics for the so-called New Economy — a company’s sales, spending, and website visitors.

Companies obliged by giving investors what they wanted. Investors want more sales? I’ll sell something to your company and you sell it back to me. No profits for either of us, but higher sales for both of us. Investors want more spending? Order another thousand desk chairs. Investors want more website visitors? Give stuff away to people who visit our website. One measure of traffic was “eyeballs,” the number of people who visited a web page; another was the number of people who stayed for at least three minutes. Even more fanciful was “hits,” the number of files requested when a web page is downloaded from a server. Companies put dozens of images on a page, and each image loaded from the server counted as a hit. Incredibly, investors thought this me …

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