C3.ai’s (NYSE:AI) impressive stock rally has reversed, with AI stock dropping more than $40 over the past three months. This is mainly because of an earnings report revealed a larger-than-expected loss, because of the company’s AI investments.
Of course, many investors may still have high hopes for C3.ai. After all, this is a pure-play AI company with AI as its ticker symbol. However, its growth lags peers despite a 150% rise this year, raising concerns about its future.
Here’s what investors may want to keep an eye on for this pricey artificial intelligence play right now.
Pushed Back Profitability Goal
C3.ai posted an adjusted loss of $0.09 for the quarter, and no longer expects profitability by April 2024, emphasizing the need for investments in generative AI to seize immediate market opportunities.
Despite positive prospects, several analysts downgraded the stock after earnings, with a consensus price target suggesting it may have peaked.
C3.ai reported Q1 revenue of $72.4 million, up 11% year-over-year, but slower than the previous year’s 25% growth. Non-GAAP net loss per share was $0.09. Although beating analyst consensus, guidance also fell below expectations.
Wall Street expected $78 million revenue for the current quarter, but management expects $72.0 million to $76.5 million, indicating a 19% year-over-year growth.
Slow Growth
C3.ai uses AI algorithms to automate tasks and improve security and fraud detection for large enterprises and government clients.
Although it achieved strong double-digit revenue growth in previous years, its growth slowed to just 6% in 2023. This raises questions about its valuation and recent performance.
Economic uncertainties have led to reduced corporate spending, and the transition to usage-based pricing has affected revenue and customer retention.
As a result, the company’s growth has slowed, and the remaining contract value has declined for five consecutive quarters. Investors face the challenge of gauging whether growth will rebound or if the current valuation is too optimistic.
Recent AI News
Pantaleon, a leading Central American sugar producer, has expanded its collaboration with C3 AI, deploying C3 Generative AI to enhance operational efficiency.
Having initially adopted two pilot applications from C3 AI in early 2023, Pantaleon is at the forefront of innovation in its industry, harnessing AI and generative AI for smarter and faster decision-making.
Google Cloud’s services and solutions power these applications, including C3 Generative AI, facilitating a transformative shift in the traditional sugar production sector.
Pantaleon is leveraging C3 Generative AI to streamline document management and analysis beyond its agricultural operations. This helps employees quickly access specific information within a vast document database, improving efficiency.
Pantaleon employs C3 Generative AI to enhance pricing outlook processes, vital for a company that pre-sells 80% of its sugar production before the harvest season begins.
What Now
Whether it’s too late to invest in C3.ai stock depends on your timeframe. In the short run, the stock appears overpriced relative to its expected growth. If you have a short-term perspective, it might be best to steer clear.
Long-term investors willing to endure volatility can still consider investing in C3.ai. However, it’s advisable not to invest a lump sum all at once.
Instead, I’m of the view that dollar-cost averaging into a position makes sense. While the company faces challenges, it’s not yet time to dismiss AI stock entirely, but proceed with caution.
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.