C3.ai stock reversed sharply lower Wednesday amid Chief Executive Office Thomas Siebel's warning about an AI bubble. Shares fell 7% and headed even lower Thursday after an analyst downgrade. Is AI stock a buy or sell now?
Shares of C3.ai stock rose after second quarter results on Dec. 9. Sales grew 29% to $94.3 million while the company reported a loss of 6 cents per share. Analysts expected $91 million in sales with a loss of 16 cents per share vs. a year-ago loss of 13 cents.
Shares got a lift early November after election results triggered the Trump rally.
The stock climbed to the 33.11 buy point of a cup pattern and was extended from a buy zone that went as high as 34.77.
AI stock rose 2% on Dec. 4 after earnings reports from software titan Salesforce late Tuesday showed that the Dow Jones member was on track with its latest artificial intelligence agents product, called Agentforce.
But on Wednesday, Siebel noted in an interview on CNBC that markets were over-evaluating the AI technologies. "There is a bubble. When there are technological breakthroughs, the market tends to overvalue them. . . but it will correct at some point," he noted.
And Thursday morning, KeyBanc Capital Markets analyst Eric Heath downgraded the stock to underweight from sector weight. He cited concerns about subscription revenue growth and revenue estimates that may be too high. The stock was down nearly 11% around midday.
Microsoft Partnership
On Nov. 19, the AI play announced that Microsoft will extend its partnership and provide cloud computing services through Azure to the artificial intelligence company. AI stock soared 24.2%, it best day since May 30, 2023, when it rocketed 33.4%, according to Dow Jones Market Data.
Microsoft and C3.ai entered into a partnership in 2018 to provide enterprise AI services to several companies.
The enterprise software company has not been idle on the technology front, either. In late October, C3.ai won a patent for its AI Agent technology. Compared to copilots that assist and answer queries, AI agents can act and perform tasks on their own.
July-quarter sales grew 21% to $87.2 million, above analyst estimates for $86.9 million, and well ahead of the company's own forecast for $82.5 million at the midpoint. C3.ai reported a loss of 5 cents per share, better than views for a 13-cent loss.
C3.ai stock undercut the 50-day moving average in July and fell further after fiscal first quarter results were announced Sept. 4.
A rally in October helped the stock clear its 50-day and 200 day moving averages. However, IBD MarketSurge shows that stock has not been able to sustain its rallies and has undercut several bases since February 2023.
Relative Strength Improves For C3.ai Stock
C3.ai has a Relative Strength Rating of 94, a sharp increase from 49 four weeks ago. Investor's Business Daily recommends focusing on stocks with an RS Rating of 80 or above.
November's rally helped the stock outperform the S&P 500. The stock soared 51%, well above the S&P 500's 6% gain.
Shift In Pricing Model
Industry trends have worked in C3.ai's favor as well. The stock skyrocketed Feb. 1, when users successfully tapped OpenAI's ChatGPT artificial intelligence app to generate answers, 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 app uses natural language to help users write emails, write code and find answers to daily 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 in line with industry standards for software-as-a-service providers. The practice is common across Amazon.com's Amazon Web Services, Alphabet's 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 CEO Thomas Siebel has indicated the consumption-pricing model will also lower barriers to entry because companies do not have to be tied to long contracts.
Artificial Intelligence News And AI Stocks To Watch
Is C3.ai Stock A Buy Now?
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, balancing inventory and demand, solving supply-chain issues and increasing energy efficiency. It can also help defend against money laundering.
The enterprise software stock popped on its first day of trading, Dec. 9, 2020. Shares leaped from their initial public offering price of 42 to finish at 92.49 that day.
C3.ai stock is prone to drastic swings. On Nov. 20, 2023, C3.ai stock jumped more than 5% but reversed lower to close with a 4.3% loss when Sam Altman was ousted as chief executive from another artificial intelligence specialist, OpenAI.
Altman quickly returned to OpenAI, but the news apparently triggered speculative trading as the market continued to search for leaders in the space.
C3.ai stock holds a Composite Rating of 93 while the EPS Rating lags at 47 due to the company's losses. Because shares are volatile and extended from the latest entry, the stock is not a buy now.
To find the best stocks, check out IBD Stock Lists and IBD Data Tables.
Please follow VRamakrishnan on X/Twitter for more news on the stock market today.
