Surprise! Why C3.ai Is Not the Pure Play AI Stock Everyone Thinks
When it comes to stock investing, learning should come before buying, not the other way around. Unfortunately, some financial traders are jumping headlong into C3.ai (NYSE:AI) stock because they’ve been told that artificial intelligence is a red-hot trend now.
It’s fine to own a moderately sized share position in C3.ai if that’s what you want to do. However, it’s important to know why you’re investing in this particular machine learning company.
There’s no denying that machine learning is top-of-mind in 2023. For instance, Goldman Sachs analyst Ben Snider recently called AI “the biggest potential long-term support for profit margins.”
Goldman analysts reportedly estimated that generative AI could boost U.S. productivity by around 1.5% annually over the next decade.
Yet, the financial markets are highly efficient. Much of the machine learning industry’s future growth is already priced into C3.ai stock. So, don’t assume that you’re the first trader to catch on to the AI trend – and don’t assume that C3.ai was the first company to serve the AI market.
| AI | C3.ai | $33.60 |
Buying AI Stock for the Wrong Reasons
Unbelievable as this might sound, it’s entirely possible that some traders are buying AI stock just because of its ticker symbol. However, as the old saying goes, you need to know what you own. Frankly, some investors aren’t abiding by that principle.
Some stock traders believe that C3.ai is just like generative AI specialist OpenAI, which became famous for its ChatGPT chatbot. In actuality, as Dana Blankenhorn summarized, C3.ai is “primarily a defense contractor” that was “founded to serve the energy industry.”
C3.ai’s software has mainly been used for analytics, rather than to power generative AI or chatbot applications. For example, C3.ai’s products might be used to estimate the “lifespan of industrial parts” for an energy corporation.
Unfortunately, several investors may have operated under the misconception that C3.ai is exactly like OpenAI. This year’s rally in AI stock might, in part, be because of unsophisticated traders failing to differentiate between distinct AI niches.
Thus, “There’s little fundamental reason to explain the recent rally,” commented Canaccord Genuity analyst Kingsley Crane. Indeed, his concern may be justified by C3.ai’s soft sales growth guidance for the fiscal year that ends in April of 2024.
Analysts had called for the company to post full-fiscal-year sales of $317 million. However, C3.ai’s sales forecast falls short of this figure, indicating a midpoint of $307.5 million.
C3.ai Stock Might Be a Bandwagon Jumper
Most financial traders know little, if anything, about the history of C3.ai. After delving into the company’s history, you might actually think of C3.ai as a latecomer to AI and even a bandwagon jumper or trend chaser.
You may be shocked to learn that the company was once an emissions tracking and energy business called C3 Energy. Then, the company was re-branded as an Internet of Things (IoT) focused business called C3 IOT. It actually wasn’t until 2019 that the company became the machine learning specialist C3.ai.
Don’t get the wrong idea here. C3.ai has a generative AI product now, and it’s widely available. Yet, this product offering might be too little, too late. When people think of generative AI, they typically think of OpenAI’s ChatGPT first and foremost, not C3.ai.
One commentator even went so far as to call ChatGPT the death of C3.ai. That sounds like an exaggeration, but the point is duly noted. If the market was already crowded before C3.ai jumped into the fray with a generative AI product, it will be difficult for the company to prevail over its rivals in that space.
Slow and Steady Could Win the Race
If you’re planning to take a position in C3.ai stock, you might choose to start slowly with just a few shares. Also, it’s essential to enter the trade (and any trade, really) with full knowledge of what you own and why you own it.
C3.ai is a promising company, and it does currently serve the generative AI software market. Yet, that hasn’t been C3.ai’s primary focus all along. Can you accept AI stock isn’t actually a pure play on generative AI? If so, feel free to consider a small share position and continue to do your due diligence on C3.ai.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
