Earlier this week, the tech-heavy Nasdaq recorded its lowest close since July 2020, with investors worrying about the impact of increased interest rates and selling shares of chipmakers on concerns over the regulations targeted at limping China's semiconductor industry.

While the continuous digital transformation and migration to the should bode well for the software-as-a-service businesses in the long run, the recent tech sell-off has battered the shares of several SaaS companies.

Moreover, as the Fed continues to maintain its aggressive stance to combat rampant inflation, the rising borrowing costs will keep tech stocks under pressure in the near term. The hotter-than-expected employment report and CPI for September almost confirm another aggressive interest hike decision in the Fed’s November meeting.

Given this backdrop, we think it may be prudent to avoid fundamentally weak SaaS stocks Palantir Technologies Inc. (PLTR), Twilio Inc. (TWLO), UiPath Inc. (PATH), and C3.ai Inc. (AI), which have slumped significantly over the past few months.

Palantir Technologies Inc. (PLTR)

PLTR develops software that enables enterprises to connect their data, decisions, and operations at scale. The company operates in two segments: Commercial and Government. It has built three principal software platforms: Palantir Gotham, Palantir Foundry, and Palantir Apollo.

During the second quarter ended June 30, 2022, PLTR’s total revenue increased 25.9% year-over-year to $473.01 million. However, its operating loss came in at $41.75 million. The company’s net loss grew 29.4% year-over-year to $179.33 million. Its loss per share amounted to $0.09.

Analysts expect PLTR’s EPS to decline 61.5% in fiscal 2022 and 50% in the current quarter ending September 2022. The stock has declined 65.9% over the past year and 55.7% year-to-date.

PLTR's POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

PLTR has been graded a D for Stability, Value, and Sentiment. Within the D-rated Software – SAAS industry, it is ranked #21 of 27 stocks.

To see additional POWR Ratings for Growth, and Momentum for PLTR, click here.

Twilio Inc. (TWLO)

Twilio Inc. and its subsidiaries offer a cloud communications platform that enables developers to create, expand, and manage client engagement within software applications. 

With the help of its customer engagement platform, developers can integrate audio, messaging, video, and email functionality into their applications while also handling the higher-level communication logic required for almost every type of customer engagement.

TWLO’s revenue increased 41% year-over-year to $943.4 million for the second quarter ended June 30, 2022. However, its non-GAAP operating loss increased 73.9% from the year-ago value to $7.3 million. Its non-GAAP net loss surged 4.9% from the prior-year quarter to $19.45 million. Its non-GAAP loss per share amounted to $0.11.

Its EPS is expected to decline 132% in the current year and 3700% in the current quarter ending September 2022. The stock has declined 79.4% over the past year and 11.1% over the past month.

TWLO's weak fundamentals are reflected in its POWR ratings. The stock has an overall D rating, equating to Sell in our POWR Ratings system. The stock has a D grade for Stability, Momentum, and Quality. In the Software – SAAS industry, it is ranked #24.

In addition to the POWR Ratings grades I have just highlighted, you can see TWLO ratings for Value, Growth, and Sentiment here.

UiPath Inc. (PATH)

PATH provides an end-to-end automation platform that offers a variety of robotic process automation (RPA) solutions, primarily in the United States, Romania, and Japan. The company provides a suite of interconnected software to design, manage, run, engage, measure, and govern automation within the enterprise.

PATH's total revenue increased 23.9% year-over-year to $242.23 million for the second quarter ended July 31, 2022. However, its operating loss grew 22.9% from the prior-year quarter to $120.19 million. 

The company’s net loss surged 20.3% from the year-ago value to $120.38 million. Its loss per share grew 15.8% year-over-year to $0.22.

Street expects its EPS to remain negative and decline 150% in the current year. The stock has declined 75.1% over the past year and 22.7% over the past month.

PATH’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.

It also has a D grade for Quality, Stability, and Momentum. PATH is ranked #26 in the same industry.

Click here to see the additional POWR Ratings for PATH (Growth, Value, and Growth).

C3.ai Inc. (AI)

AI is an enterprise artificial intelligence (AI) software firm that operates in North America, Europe, the Middle East, Africa, Asia Pacific, and globally. It has strategic agreements with Baker Hughes in the oil and gas market, FIS in the financial services market, Raytheon, AWS, Intel, Google, and Microsoft.

During the second quarter ended July 31, 2022, AI’s total revenue increased 24.6% year-over-year to $65.31 million. However, its total cost of revenue increased 41.3% from the year-ago value to $18.41 million. 

Its operating loss grew 100.5% from the prior-year quarter to $73.21 million. The company’s net loss surged 91.9% year-over-year to $71.87 million. Its loss per share amounted to $0.67.

Analysts expect AI’s EPS to decline 8.2% in fiscal 2022 and 214.3% in the next quarter ending January 2023. The stock has declined 73.5% over the past year and 618% year-to-date.

AI's POWR ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system.

AI has been graded a D for Stability, Momentum, and Quality. Within the same industry, it is ranked last.

To see additional POWR Ratings for Growth, Sentiment, and Value for AI, click here.

PLTR shares were trading at $8.11 per share on Thursday afternoon, up $0.04 (+0.50%). Year-to-date, PLTR has declined -55.46%, versus a -22.07% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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