While some companies burn cash to fuel expansion, others struggle to turn spending into sustainable growth. A high cash burn rate without a strong balance sheet can leave investors exposed to significant downside.

Just because a company is spending heavily doesn’t mean it’s on the right track, and StockStory is here to separate the winners from the losers. That said, here are three cash-burning companies to avoid and some better opportunities instead.

C3.ai (AI)

Trailing 12-Month Free Cash Flow Margin: -23.1%

Named after the three Cs of its original focus—carbon, cloud computing, and customer relationship management—C3.ai (NYSE: AI) provides enterprise AI software that helps organizations develop, deploy, and operate large-scale artificial intelligence applications across various industries.

Why Is AI Risky?

1. Offerings struggled to generate meaningful interest as its average billings growth of 12.4% over the last year did not impress
2. Gross margin of 56.6% is way below its competitors, leaving less money to invest in areas like marketing and R&D
3. Cash-burning history makes us doubt the long-term viability of its business model

C3.ai is trading at $19.15 per share, or 8.4x forward price-to-sales. If you’re considering AI for your portfolio, see our FREE research report to learn more.

Sphere Entertainment (SPHR)

Trailing 12-Month Free Cash Flow Margin: -4%

Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE: SPHR) hosts live entertainment events and distributes content across various media platforms.

Why Should You Sell SPHR?

1. 7.6% annual revenue growth over the last five years was slower than its consumer discretionary peers
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Sphere Entertainment’s stock price of $62 implies a valuation ratio of 12.9x forward EV-to-EBITDA. To fully understand why you should be careful with SPHR, check out our full research report (it’s free for active Edge members).

Purple (PRPL)

Trailing 12-Month Free Cash Flow Margin: -5.8%

Founded by two brothers, Purple (NASDAQ: PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.

Why Do We Avoid PRPL?

1. Products and services have few die-hard fans as sales have declined by 2.9% annually over the last five years
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $0.92 per share, Purple trades at 7.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why PRPL doesn’t pass our bar.

Stocks We Like More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.