Last week, I mentioned in my article how C3.ai (NYSE:AI) is a significant player in AI, but its high valuation draws investor scrutiny despite its potential.
This is a company that’s certainly polarizing, and for good reason. As far as companies viewed as battlegrounds in the artificial intelligence discussion, AI stock certainly makes the list (and for more reasons than just its ticker).
Accordingly, with so much attention being paid to this artificial intelligence and automation play, let’s dive into what investors may want to keep in mind as potential catalysts or headwinds on the horizon. Here are a few things I’m keeping an eye on right now investors may want to watch.
Recent Earnings Report
C3 AI CEO Thomas M. Siebel expressed the growing global interest in enterprise AI adoption and strong traction with C3 Generative AI.
C3.ai’s Q1 earnings exceeded expectations, but revenue fell short of Wall Street estimates, and the revenue outlook for AI stock was also lower than expected.
In the July quarter, the company reported an adjusted loss of 9 cents per share compared to a 12-cent loss the previous year, with revenue increasing by 11% to $72.36 million.
C3.ai’s Q1 results beat estimates with a loss of 9 cents per share and $72.36 million in revenue.
However, its Q2 outlook fell short of expectations, leading AI stock to drop 4.2% to $30.15 in after-hours trading. Analysts had predicted a 17-cent loss and $73.8 million in revenue, while the company’s guidance is for a 12-cent loss and revenue of $72-76.5 million.
I’m going to be keeping a close eye on how guidance improves (or not) in upcoming earnings reports.
C3.ai Fundamentals
As an AI industry pioneer, the firm, though recent losses, anticipates profitability by 2025. With management holding 26%, alignment with investors is clear.
The stock is rebounding from a deep 2021-2022 bear market, bottoming at $10/share in December 2022 and now trading at $31/share in a volatile 2023. Bulls hope for an earnings-driven breakout, while bears expect a gap down and decline.
During earnings season, what matters most to me is how the market and a company respond to the news. Remember, limit losses and don’t go against market trends.
C3.ai’s stock surged in 2023 due to excitement around OpenAI and generative AI. The company expects revenue to grow as AI pilot projects expand, making it a notable AI stock with a strong Relative Strength Rating of 97.
C3.ai went public in December 2020, raising $651 million. The company specializes in AI applications for industries like energy, finance, and defense. It recently shifted its pricing model from subscription to consumption-based.
This could lead to significant growth over the long-term, but also comes with some risks. Investors will need to watch how this shift affects the company’s fundamentals and growth prospects moving forward.
What Now
C3.ai is undeniably pricey given its current growth rate, but this is likely to change as growth accelerates.
Analysts project an impressive 51% annual earnings growth for the next five years. With a vast $791 billion market to tap into, C3.ai has the potential to achieve this.
Investors open to a premium valuation for C3.ai’s promising future may see opportunity in its recent dip. As growth speeds up, Wall Street’s confidence is likely to increase, potentially driving long-term gains for this AI stock.
That said, this company’s valuation is a sticking point, making AI stock one I think investors can trade, but may have difficulty owning right now.
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.