Artificial intelligence may well be the next biggest technological revolution after the internet. But investors looking to participate in this growth story after the rally fueled by this rapidly spreading technology in 2023 have their work cut out trying to identify whether C3.ai (AI) stock is a potential leader.
Which begs the question: Is AI stock a buy now?
C3.ai reported fiscal second-quarter results on Wednesday. Sales grew 17% to $73.2 million while its net loss of 13 cents a share was steeper than an 11-cent deficit in the prior-year quarter. Sales came in at the lower end of the company’s forecast of $72 million to $76.5 million.
Still, Chief Executive Thomas M. Siebel said in the company’s earnings release: “In the trailing four quarters, we have seen top line year-over-year revenue growth increase from -4% in Q3 FY23, to 0% in Q4 FY23, to 11% in Q1 FY24, to 17% in Q2 FY24.”
For the third quarter, the company expects revenue of $76 million at the midpoint of its range, or an increase of 14% from the prior year.
Shares fell below their 50-day moving average on Thursday. Going into earnings, however, AI stock had rebounded from its 50-day line and was treading along the 200-day moving average.
On Nov. 20, the stock traded more than 5% higher before giving up all of its gains amid turmoil that followed the ouster of Sam Altman from OpenAI. After initially agreeing to join Microsoft (MSFT), Altman quickly returned to OpenAI as its chief executive. The news likely triggered speculative trading as the market continues to search for leaders in the space.
High Relative Strength Rating
C3.ai stock has a high Relative Strength Rating of 92. That shows the stock has outperformed 92% of all stocks in the IBD database over the past 12 months.
AI stock has more than doubled since December 2022, when it traded at 11.19. The S&P 500 shows an 18% gain over the same period.
But that doesn’t necessarily make AI stock a buy. Consider the stock’s volatility, which — like many other growth stocks — can be wild.
In September, the S&P 500 fell 4.9% while AI fell 18%. That followed C3.ai’s steep decline of 26% in August, when the S&P 500 lost a little less than 2%. And in October, C3.ai fell 4.4%, whereas the S&P 500 lost 2.2%.
Conversely, AI stock rose 20% in November vs. the index’s 9% gain. The stock is unchanged thus far in December while the broad index is down less than 1%.
A closer look at the Relative Strength Rating on IBD MarketSmith also shows slight deterioration from where it stood three months ago, when the stock scored 97. Further, the 50-day moving average is below the 200-day line, which is a bearish sign.
Is C3.ai Stock A Buy Now?
The enterprise software company reported first-quarter results that disappointed as well. Shares plummeted after the company gave an outlook for the second quarter in early September.
Sales of $72.4 million came in at the higher end of its outlook. And its loss per share narrowed to 9 cents from the 12 cents reported in the prior year’s quarter. Subscription revenue accounted for 85% of total revenue.
But the company backed off its goal of achieving profitability by April 2024 due to plans for more investments in generative artificial intelligence.
JPMorgan analyst Pinjalim Bora, who has a neutral rating, did not find “top-line metrics materially inflecting higher to justify the increased investment posture.”
Shift In Pricing Model
In December, C3.ai changed its pricing model from subscription to consumption-based pricing.
The move brought the company in line with industry standards for software-as-a-service providers. The practice is common across Amazon.com‘s (AMZN) Amazon Web Services, Alphabet‘s (GOOGL) Google Cloud and Microsoft’s Azure, as well as smaller players.
Consumption pricing works like a utility bill. That is, the higher the consumption, the pricier the service. Since AI customers will benefit from having access to an AI enterprise platform with unlimited use and developer licenses, the switch to consumption pricing could drive revenue growth, but not immediately.
C3.ai Chief Executive Thomas Siebel indicated the consumption-pricing model will also lower barriers to entry because companies do not have to be tied to long contracts.
ChatGPT Success For C3.ai Stock
AI stock skyrocketed in February when users successfully tapped OpenAI’s ChatGPT artificial intelligence app to generate answers, texts, emails and even books.
The ChatGPT app reached 100 million monthly active users in two months, beating popular apps like TikTok and Instagram. OpenAI’s partnership with Microsoft ChatGPT uses natural language to help users write emails, develop code and find answers to daily questions.
Redwood City, Calif.-based C3.ai makes software applications equipped with artificial intelligence that can be configured for different purposes. The software can make networks more reliable by detecting fraud, balance inventory and demand, solve supply-chain issues and increase energy efficiency. It can also help defend against money laundering.
C3.ai Stock’s Initial Offering
The enterprise software stock popped on its first day of trading after its initial public offering on Dec. 9, 2020. Shares leapt from an IPO price of 42 to finish at 92.49 that day.
However C3.ai stock has less-than-ideal IBD ratings and has not formed a base, so the stock is not a buy at this time.
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