This Big-Time AI Stock Could See Some Downside Ahead

Stock Market

C3.ai (NYSE:AI) stock is a prominent player in the artificial intelligence sector, specializing in enabling the creation and deployment of enterprise AI applications, a critical component for the AI industry’s expansion.

The company experienced strong demand reflected in Q1 revenue of $72.4 million, showing year-over-year growth but falling short of last year’s 25% increase. The stock price has declined significantly from its summer peak. Here’s what’s happening with C3.ai and industry peers:

AI Stock Was Down in September

C3.ai stock faced challenges recently due to disappointing Q1 earnings and a more extended timeline for achieving profitability, compounded by the Federal Reserve’s interest rate outlook.

The stock experienced an 18% decline in a month, mainly driven by disappointing earnings and the company’s decision to prioritize AI investment over immediate profitability.

C3.ai reported Q1 revenue of $72.4 million, up 11%, surpassing estimates. However, it posted a GAAP net loss of $64.4 million and an adjusted loss of $0.09 per share, beating expectations of $0.17 per share loss.

Analysts had mixed reactions, with Bank of America and Deutsche Bank expressing doubts about AI benefits and investor skepticism.

Recent AI News

C3.ai is partnering with ESG Book, a leader in sustainability data, to offer enhanced insights to ESG teams.

This collaboration merges C3 AI’s AI-powered ESG application with ESG Book’s extensive sustainability data, empowering enterprise sustainability teams with advanced data-driven analysis.

According to Ed Abbo, President and CTO at C3 AI, “C3 AI ESG is reshaping ESG strategy and performance with AI insights, offering valuable opportunities for value creation.

This partnership with ESG Book and its extensive datasets empowers our customers to confidently set and achieve ambitious ESG goals.”

Currently, businesses grapple with ESG challenges, including scattered data, shifting stakeholder expectations, and changing regulations. This often involves sifting through extensive documents and diverse data sources to make informed decisions.

What Now

C3.ai has long-term potential but faces recent losses and strives for non-GAAP profitability this fiscal year. It has a strong balance sheet with $790 million in cash. However, its valuation, at over 11 times sales, might deter growth investors.

A gradual approach like dollar-cost averaging may be wise for bullish investors.

There are concerns raised by bears, and if the AI-related valuation contraction persists, AI stock could see further short-term decline.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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