Artificial intelligence could be the next big technological revolution after the internet. But investors who want to participate in this growth story have their hands full identifying whether C3.ai (AI) is a potential leader. That begs the question: is C3.ai stock a buy now?
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C3.ai reported its first-quarter results after the market closed on Wednesday. Revenue rose 21% to $87.2 million, topping analyst estimates of $86.9 million and well above the company’s own forecast of $82.5 million at the midpoint. C3.ai reported a loss of 5 cents per share, ahead of expectations for a loss of 13 cents. Still, shares fell more than 15% in after-hours trading.
Shares of C3.ai rose after the company reported fiscal fourth-quarter results in May, recovering from its 50-day line. But the stock has now given up those gains.
Shares rose 0.5% on Sept. 3 but are in a downtrend and below their 50- and 200-day moving averages.
Weakening relative strength for C3.ai stocks
C3.ai stock has a Relative Strength Rating of 13, down sharply from 97 a year ago. Investor’s Business Daily advises to focus on stocks with an RS rating of 80 or higher. The chart is also bearish, as the 200-day moving average is above the 50-day line.
The stock is also underperforming the S&P 500.
In January, the S&P 500 rose 1.6% while C3.ai fell 14%. In February, the stock surged 50% on fiscal third-quarter results and bullish guidance, while the S&P 500 rose 5%. But most of the gains were erased in March, when the stock fell 27% while the S&P 500 rose 3%.
It underperformed the index again in April, though fourth-quarter results helped the stock outperform the benchmark index in May, as it gained 31% versus the index’s 4.8% gain. In June and July, the stock fell 2% and 7.6%, while the S&P 500 gained 3.5% and 1.1%. In August, the index gained 2.3%, while C3.ai shares fell 12.8%.
The stock is also prone to drastic swings. On November 20, 2023, C3.ai stock rose more than 5%, but then fell again to close with a loss of 4.3% when Sam Altman was ousted as CEO of another artificial intelligence specialist, OpenAI. Altman quickly returned to OpenAI, but the news apparently led to speculative trading as the market continues to search for leaders in the sector.
Shift in pricing model
Industry trends have also worked in its favor, however. Shares of C3.ai skyrocketed on Feb. 1, as users successfully used OpenAI’s ChatGPT artificial intelligence app to generate replies, texts, emails, and even write books.
The ChatGPT app reached 100 million monthly active users in two months, beating popular apps like TikTok and Instagram. OpenAI’s partnership with MicrosoftChatGPT (MSFT) uses natural language to help users write emails, write code, and find answers to everyday questions.
There are other considerations. In December 2022, C3.ai changed its pricing model from subscription to consumption-based pricing.
The move brought the company into line with industry standards for software-as-a-service providers, a practice common in Amazon.nl(AMZN) Amazon Web Services, Alphabet(GOOGL) Google Cloud and Microsoft Azure, but also smaller players.
Consumption pricing works like a utility bill. That is, the higher the consumption, the more expensive the service. Since AI customers benefit from access to an AI business platform with unlimited usage and developer licenses, the move to consumption pricing could boost revenue growth, but not immediately.
Thomas Siebel, CEO of C3.ai, indicated that the consumer pricing model will also lower barriers to entry, as companies are no longer locked into long contracts.
Artificial Intelligence News and AI Stocks to Watch
Is C3.ai a stock to buy now?
C3.ai, based in Redwood City, California, creates software applications equipped with artificial intelligence that can be configured for different purposes.
The software can make networks more reliable by detecting fraud, balancing inventory and demand, solving supply chain problems and increasing energy efficiency. It can also help defend against money laundering.
Business software stock soared on its first day of trading on December 9, 2020. Shares rose from an IPO price of 42 to 92.49 that day.
C3.ai stock still has some work to do to improve its value. Composite Rating, which is at 26 out of 99. The EPS Rating lags even further, at 14. Shares are also below their 50-day moving average, with no base in sight. The stock is no bargain right now.
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