What happened
Stocks have been generally higher over the past week, even as investors considered the ongoing debt ceiling debate and what it means for the future of the broader market. In recent days, market participants have focused on advancements in artificial intelligence (AI) and what opportunities that represents for investors.
With that as a backdrop, C3.ai (AI -1.34%) jumped 35.9% this week, Palantir Technologies (PLTR 0.02%) rose 21.9%, and SoundHound AI (SOUN 3.19%) jumped 13.7% as of 1:30 p.m. ET on Thursday.
Preliminary earnings results from C3.ai and announcements made during Alphabet's (GOOG -2.33%) (GOOGL -2.23%) 2023 I/O developer conference helped boost much of the sector this week, while Palantir Technologies and SoundHound AI basked in the glow of last week's financial results.
Image source: Getty Images.
So what
C3.ai sported the biggest gains over the past week after the company reported preliminary results that were far better than expected. Management said that for its 2023 fiscal fourth quarter (ended April 30), revenue will be in a range of $72.1 million to $72.4 million, or essentially flat year over year at the midpoint.
While this might not seem like a reason to celebrate, C3.ai was previously expecting revenue to decline roughly 2% at the midpoint of its guidance. The preliminary results also exceeded analysts' consensus estimates, which were calling for revenue of $71.3 million. Furthermore, in the face of mounting losses, the company said it expected to be free cash flow positive, an important step toward consistent profits.
Alphabet also helped fuel excitement for all things AI this week, on the heels of the company's 2023 I/O developer conference last week. Google announced a litany of AI-backed products and services, the headline of which was the company's new and improved large language model, which will form the foundation for its generative AI ambitions and result in an upgrade for Bard, Google's next-generation chatbot.
The search giant also revealed plans to deeply integrate next-generation AI into a broad cross-section of its products and services. These include AI-assisted features coming to Google Docs and Maps, a photo-editing tool for Google Photos, and Help Me Write, which will help compose draft messages in Gmail.
Palantir and SoundHound AI investors continued to revel in the wake of their companies' respective financial results last week.
On May 9, Palantir reported results that exceeded analysts' consensus estimates and the company's own guidance. However, it was management commentary from the AI-based data analytics company that turned heads. CEO Alex Karp said, "We now anticipate that we will remain profitable each quarter through the end of the year," a welcome and unexpected development. Further bolstering investor sentiment, Karp noted, "The depth of engagement with and demand for our new Artificial Intelligence Platform is without precedent."
SoundHound AI released its first-quarter financial report on May 11, and investors welcomed the results. The conversational AI specialist reported revenue of $6.7 million, up 56% year over year, while also reducing its losses, both sequentially and year over year.
Again, it was management commentary that helped fuel investor excitement. "The incredible surge in demand for conversational AI is giving SoundHound a unique advantage," said CEO Keyvan Mohajer. He went on to note that the company offers "the most powerful voice assistant available today," making it a go-to for businesses looking to harness chatbot technology.
Data by YCharts
Now what
It's easy to get caught up in all the hype surrounding AI in general, and the recent advances in generative AI in particular. All three of these AI-related stocks have gotten a boost this year, fueled by the excitement surrounding the industry.
However, both C3.ai and SoundHound AI are currently unprofitable, and all three stocks sport valuations that would send any value investor running. SoundHound AI, Palantir Technologies, and C3.ai are currently selling for 14 times, 12 times, and 11 times sales, when a reasonable price-to-sales ratio is between 1 and 2.
The potential opportunity for AI remains vast, and there will likely be many winners in the months and years ahead. That said, investors should approach AI-centric stocks with caution, since it may take time for the reality to catch up to the current hype.
