C3.ai (NYSE:AI) just reaffirmed its commitment to developing generative artificial intelligence (AI) products, but the market is choosing to focus on near-term profitability. That’s the wrong way to interpret C3.ai’s recent press release, in my opinion, and I’m bullish on AI stock despite many traders’ negative reactions today.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
C3.ai is headquartered in California, and the company provides AI-empowered software products. Unlike Microsoft (NASDAQ:MSFT), which invested in OpenAI’s ChatGPT generative AI chatbot technology, C3.ai focuses entirely on AI.
Consequently, AI stock is a pure play on the future of machine learning technology. However, even though AI is the main topic of conversation in 2023, the market certainly didn’t favor C3.ai today. So, let’s dive in and see what some stock traders might find objectionable about C3.ai and then determine if there’s a prime dip-buying opportunity here.
A Double-Dose of C3.ai Press Releases
Here’s something that hardly anyone expected. After the market closed yesterday, and just a few minutes before C3.ai published its quarterly results, the company announced a new suite of generative AI products. Clearly, there must be something special about this product lineup if it deserved a separate press release yesterday.
It’s called the C3 Generative AI Suite, and it includes “28 new domain-specific generative AI offerings.” Businesses in the oil and gas, utilities, aerospace and defense, financial services, telecommunications, and other fields can benefit from C3.ai’s sector-specific generative AI solutions.
I was actually watching the AI stock price in after-hours trading yesterday, and it jumped a couple of percentage points immediately after the C3 Generative AI Suite announcement. For a moment, I had assumed that the market was reacting to a positive quarterly earnings report, but that report wasn’t released yet.
Then, just a few minutes later, C3.ai published its financial results for the first quarter of Fiscal Year (FY) 2024. It’s fascinating to watch stock prices move after earnings releases; you can almost hear financial traders reading it from top to bottom and reacting accordingly.
Delayed Profit Prospects Rattle C3.ai Stockholders
AI stock actually jumped for a hot minute, probably because traders were relieved to find out that C3.ai posted top- and bottom-line quarterly beats. Specifically, C3.ai’s Fiscal Q1-2024 revenue grew by 10.8% year-over-year to $72.36 million, beating the consensus estimate by $0.76 million.
Furthermore, C3.ai continued its impeccable track record of quarterly EPS beats. This time around, Wall Street expected C3.ai to report a quarterly loss of $0.17 per share, but the actual result was a loss of only $0.09 per share.
There’s really nothing objectionable in those results, wouldn’t you agree? Yet, investors are forward-looking, and they didn’t like C3.ai’s announcement that it plans “to invest in lead generation, branding, market awareness, and customer success related to our Generative AI solutions.” As a result, while C3.ai’s management “still expect to be cash positive in Q4 FY 24 and in FY 25,” the company “will be investing in our Generative AI solutions and at this time do not expect to be non-GAAP profitable in Q4 FY 24.”
In other words, C3.ai is delaying its path to profitability for a while. I tend to see the glass as half-full in this situation, even if many stock traders are pessimistic. Sure, C3.ai will have to spend money in the near term in order to develop best-in-class generative AI products. Unfortunately, some market participants are evidently shortsighted and can’t tolerate pain today for gains later on.
Besides, C3.ai can still achieve profitability at some point as well as positive cash flow during the coming quarters. So, if you’re willing to play the long game, there’s no need to rule out C3.ai.
Is AI Stock a Buy, According to Analysts?
On TipRanks, AI stock comes in as a Strong Buy based on two Buys, six Holds, and four Sell ratings assigned by analysts in the past three months. The average C3.ai price target is $27.11, implying 1.9% downside potential.
If you’re wondering which analyst you should follow if you want to buy and sell AI stock, the most profitable analyst covering the stock (on a one-year timeframe) is Patrick Walravens of JMP Securities, with an average return of 11.09% per rating and a 54% success rate. Click on the image below to learn more.
Conclusion: Should You Consider C3.ai Stock?
I tend to view today’s C3.ai stock drop as an overreaction and possibly even a wrong reaction. C3.ai’s management understands that new product investment is costly now but can lead to powerful revenue streams later on.
Apparently, today’s short-term stock traders weren’t particularly interested in C3.ai’s long-term prospects. That’s not a problem at all, as C3.ai’s future investments in generative AI solutions could boost the company’s financials in 2024 and beyond. Hence, I believe it makes sense to consider AI stock if you’re prepared to hold the shares for at least a couple of years.
