Is Appen Share Price Still an AI Bargain?

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The enthusiasm for artificial intelligence (AI) has been high ever since APPEN LTD (ASX: APX) share price has failed to catch the wave this year.

What was once a darling of Aussie tech investors is now a shell of its former glory. Falling from AI’s peak, the training and data labeling company’s shares are now 41.5% below where they finished last year. All this is made more confusing by surprise moves by other global companies with exposure to the booming sector.

However, how long can such a steep decline continue? Especially given the relevance of Appen in what is considered a the hottest Currently the industry.

Can the continued scaling of the market now go wrong?

There is a question of crowd

Appen’s first-half results for 2023 did not inspire confidence among investors. Facing a challenging environment, the data solutions company posted a 24% decline in revenue, which fell to US$138.9 million compared to the prior corresponding period.

Furthermore, Appen’s underlying EBITDA took a hit during the period, posting a loss for half of the segment. A reduced revenue profile and increased costs were the reasons for the negative result.

These facts alone would not necessarily be a problem if long-term investors were jolted into a generally positive trend. Unfortunately, analysts and shareholders have become more skeptical about whether Appen can face the existential threat — a fear reflected in Appen’s share price.

As an example, one analyst on Appen’s earnings call commented:

Maybe the crowd model is dead or something has been thought about? Maybe there’s a disruption somewhere that Appen can’t take advantage of… and we’re just working with rebranding the old stuff?

Here’s a reference to Appen’s reliance on paying people to provide data labeling to create training datasets. Real people need to be paid to do the manually intensive work of observing and annotating data.

However, Appen denied that human involvement was ancient. Instead, CEO Armughan Ahmed cites ‘reinforcement learning from human feedback (RLHF)’ as an ongoing need for Appen’s services. However, not all research reaches the same conclusion.

In March this year, MIT Technology Review AI safety and research company Anthopik reported on an interesting discovery. According to a non-peer-reviewed paper, some large language models have shown evidence that their output can be corrected for biases simply by prompting them to do so.

At the very least, it could cast doubt on future demand for Appen’s services.

What do the fundamentals say about Appen’s share price?

Appen currently has a market capitalization of $216 million, which equates to an estimated price-to-book (P/B) value of 1. However, it is difficult to tell whether a company’s assets are truly worth their current quoted value. to be sold.

On a positive note, Appen had a net cash balance of US$55 million with no debt at the end of June. This may indicate that the company is at low risk of any immediate financial stress.

Despite this, Peter Day of Sequoia Wealth Management is still not a buyer of Appen at this share price, as published in bull. Day says challenges remain as customers examine their AI strategies.

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