The artificial intelligence (AI) boom sent C3.ai (AI 3.02%) shares skyrocketing. The stock has gained 267% in 2023 amid rising interest in anything AI-related.
Is this the start of a sustained climb for C3.ai and its investors, or should you brace yourself for a price correction? Let's take a look.
The story behind C3's roller-coaster stock chart
C3.ai's stock launched skyward when OpenAI introduced the ChatGPT system. That jump wasn't necessarily based on any profound investor insights. The company has AI in its name and stock ticker, so it looks like an obvious play on that specific market.
Now, C3.ai does specialize on artificial intelligence, but its tools are very different from the ChatGPT generative AI experience. The company specializes in tailor-made data analysis systems to consume specific data sets and produce actionable business insights. C3.ai sees ChatGPT as just another tool it can plug into its own platforms in order to add a new process control tool.
"Everybody's scared. Everybody wants to know what this means," CEO and founder Tom Siebel said in June's annual investor day presentation. "But to us, it was just another tool that came available, and our platforms allow us to just put it in our machine learning -- and now we have generative AI."
Siebel explained that C3.ai has spent $1.5 billion on AI engineering over the years, creating a powerful portfolio of business process boosters. It is "one cohesive structure," supported by many plug-in tools and support services. If ChatGPT can make the C3.ai software experience better, it's an easy add-on. If the next version (or a completely different AI tool from another company) can do it better, C3.ai would just make a seamless switch.
So this company is deeply involved in the AI industry, but its challenges and opportunities are radically different from consumer-friendly tools like ChatGPT. The data you get from C3's tools will support real-world decisions made by business leaders and government agencies. The U.S. Department of Defense is one of C3.ai's largest customers, and the military needs robust information that can be traced through the analysis process, all the way back to its original source. You don't get that in a large language model (LLM) like ChatGPT or Google Bard.
Image source: Getty Images.
C3.ai's generative AI launch
That said, C3.ai recently launched its own generative AI system. Again, it's an incredibly business-minded take on the ChatGPT-like experience. Whether your business data consists of sensor readings, financial transactions, or user inputs from a smartphone app, C3.ai feeds it into a sophisticated deep learning system. So far, that's just business as usual.
But now, users can interface with this automated knowledge source through simple commands in plain English rather than tweaking search parameters and input filters just right. The company markets this as a "transformational" tool for enterprise-scale business intelligence.
C3.ai will present its first earnings report since that launch on August 30. I don't expect it to move the company's financial needle yet, but management should shed some light on the early uptake and customer interest.
This probably isn't the right time to buy C3.ai
Generally speaking, C3.ai's stock looks overheated right now. Shares are trading hands at 17 times sales and 354 times forward earnings, setting an impossibly high bar for chart-supporting business results.
So if you're buying C3.ai shares today, you must accept a heavy load of business risk. The company is not yet profitable and its sales have been flat in recent quarters. Management expects a return to top-line growth in fiscal year 2024, which ends on April 30 next year.
All things considered, it looks like Wall Street is getting a bit too excited about C3.ai's business prospects right now. The stock may very well be a great long-term buy, but you should expect plenty of turbulence along the way. Let's say, for example, that you picked up a few C3.ai shares on April 1. Since then, the stock has climbed as much as 38% higher but also dropped 49% lower.
The way to enter an ultra-volatile stock like this one is to look out for the next deep price drop -- while also making sure the long-term growth prospects hold steady. In other words, keep an eye on how C3.ai's business is developing and consider buying it on the dips. I'm sure you will see plenty of opportunities in the quarters and years ahead.
