C3.ai (NYSE: AI) has seen a faster growth rate in recent quarters thanks to its connections with artificial intelligence (AI). The company focuses on providing turnkey AI solutions to businesses and believes it can simplify AI adoption for companies looking to take advantage of next-generation technologies.
C3.ai’s latest quarterly earnings update is scheduled for release on December 9. What the report says will likely play a key role in determining where the stock goes in the weeks and months that follow.
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While timing the purchase of a stock to a single event is not as important for investors with a long-term buying strategy, it is true that buying stocks at a discount can improve the eventual overall return. Quarterly reports sometimes influence a stock’s price, so the timing of a purchase can play a role, but should not be the deciding factor in whether or not to buy.
That said, should you buy the stock before C3.ai announces results for the recently completed quarter?
It’s been a volatile few years for C3.ai’s business, as the company endured a sharp slowdown in 2022. However, the company got a nice boost in late 2022 with the release of OpenAI’s revolutionary upgrade to its ChatGPT generative AI chatbot. The excitement surrounding ChatGPT and AI in general led to the growth of the company. C3.ai is growing again by more than 20% on an annual basis.
AI operating revenue data (quarterly year-over-year growth) according to YCharts
For the just-completed quarter, C3.ai expects revenue to be between $88.6 million and $93.6 million. At the midpoint, that would suggest a growth rate of around 24%, indicating further acceleration in the company’s revenue.
Achieving these expectations will be critical not only to satisfying growth investors, but also to potentially moving the company closer to breakeven. In the past, the company’s CEO referred to profitability as a “mathematical certainty” that would come with scaling operations.
While there is little doubt that the company is experiencing significant growth, the one major problem with C3.ai is that it is not achieving that growth in a sustainable manner. While revenue growth is great, the company needs to show that it is making progress on profitability. A top AI stock like Nvidia It has been a fantastic investment because not only did it generate tremendous revenue growth, but profits also skyrocketed. That is not the case with C3.ai.
AI data on net income (quarter) according to YCharts
While the company has made some progress in reducing losses, it still has a long way to go to reach breakeven. How well it performs on the bottom line could be much more important to C3.ai in generating more bullishness around its business than just pure revenue growth.
If the company wants to prove its doubters wrong – and there are many, with short interest as a percentage of float at well over 23% – it will have to demonstrate that it can make significant progress on the earnings front. . If not, a sale could be just around the corner.
If C3.ai’s business shows signs of slowing down next quarter and earnings don’t show significant improvement, investors could quickly dump the stock. That’s because if C3.ai fails to make significant progress on the bottom line at a time when conditions should be ideal for business growth, its prospects will undoubtedly deteriorate as the economy slows and companies may cut back on some or all of their AI-related spending. If that happens, C3.ai could be one of many AI stocks that growth investors could quickly become very bearish on.
Waiting on the sidelines until after the earnings call (and maybe even longer than that) before deciding whether to buy the stock may not be all that exciting, but it’s the safer and wiser approach, especially with C3.ai. The stock has done well this year, up 35% since Monday, but there are still too many question marks surrounding the company to make it a safe investment to hold on to for the long term.
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David Jagielski has no position in the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
Should you buy C3.ai shares before December 9? was originally published by The Motley Fool
