C3.ai (AI +2.98%) stock saw significant sell-offs Friday -- the final day of trading in 2023. The company's share price ended the daily session down 5%, according to data from S&P Global Market Intelligence. The S&P 500 index closed out the day down roughly 0.3%, and the Nasdaq Composite index ended the session down roughly 0.6%.
While there wasn't any business-specific news spurring the pullback for C3.ai stock today, the company lost ground amid an uptick in bearish momentum for the broader market. Many investors likely opted to sell stocks today for tax purposes, and it's probable that this catalyst resulted in C3's shares losing ground.
NYSE: AI
Key Data Points
Today's sell-off doesn't say much about C3.ai
After a brutal stretch of bearish trading in 2022, the stock market came roaring back in 2023. The S&P 500 index's level climbed 24.2% across this year's trading. Meanwhile, the even more growth-oriented Nasdaq Composite index closed out the year up 43.4%.
With such a strong market run in 2023, some investors likely chose to take profits on high-performing stocks today. C3.ai certainly fits the bill, having soared 156.9% year to date.
Additionally, many investors likely chose to sell stocks that they had taken losses on this year. When investors sell stocks that they have taken a loss on, they can reduce their tax bill for the year. Between investors taking profits on strong performers and making moves to reduce their tax exposure, it's not surprising that the broader market saw some significant sell-offs today. It's also not surprising that C3.ai stock fell more than the broader market.
But is C3.ai stock a smart buy right now?
C3.ai stock had an incredible year in 2023. The company's valuation surged thanks to rising interest in artificial intelligence (AI) and news that the company had secured some new contracts with government customers. The impressive gains also had the effect of pushing the company's valuation up to even more growth-dependent levels.
AI PS Ratio (Forward 1y) data by YCharts
Still posting losses and trading at roughly 9.4 times expected sales in 2024, C3.ai stock continues to look like a risky bet at current prices. If the company's sales growth continues to accelerate and margins make significant improvements, it wouldn't be surprising to see the stock's hot streak continue into 2024.
On the other hand, there are some good reasons to be concerned that the company's valuation has become unreasonably stretched amid the massive surge of bullish sentiment surrounding companies providing AI services. Ultimately, C3.ai stock continues to look very risky. It's still not clear that the company is on track to deliver artificial intelligence wins that can justify its forward-looking valuation, and investors without high levels of risk tolerance will probably be best served by seeking out other potential winners in the AI space.
