AI Stock Outlook: Should You Buy C3.ai Now?

When it comes to deciding which AI stock to buy, I think there’s a reason for investors to take an optimistic and bullish view longer-term.

The idea that we’re going to need increased efficiency to see productivity growth isn’t a new one. We’re just shifting the burden away from machines to computing systems, but the idea isn’t novel.

As more companies shift their focus to AI, this market is expected to grow in an exponential fashion in the years to come.

With companies like C3.ai (NYSE:AI) at the forefront of this revolution, there are plenty of exciting options for investors to choose from as ways to gain exposure to this growth.

While C3.ai certainly holds promise (and the coveted AI stock ticker), AI stock has been cut roughly in half from its June peak.

This decline has come amid an underwhelming earnings report, and a revised profit timeline. Continued monetary policy tightening and a broadly bearish macro backdrop haven’t helped the company, as most AI-related names have declined of late.

So, is this decline of roughly 50% from its recent peak a dip worth buying? Let’s dive in.

September Lows

C3.ai saw a 12% drop in its stock on Sept. 7, despite beating revenue expectations. The company’s decision to delay profitability in favor of AI investment led to investor concerns.

Analysts had a lukewarm response to the report. Bank of America noted the lack of AI benefits, and Deutsche Bank said it couldn’t dispel investor doubts.

Later, the stock dropped because of the Federal Reserve’s announcement of prolonged high interest rates. In the final days of the month, shares recovered alongside the tech sector without specific catalysts.

C3.ai’s forward outlook is cautious, with a modest 15% revenue growth projection for fiscal 2024 and an expected adjusted operating loss of $70 million to $100 million. CEO Thomas Siebel emphasized the immediate market opportunity.

Chip Supply Cuts by Biden Administration

C3.ai stock surged over 6% following the Biden administration’s restrictions on chip exports to China, outperforming the S&P 500.

The President aimed to halt chip exports to China, including advanced AI-related chips, amid concerns about military applications. These expanded restrictions, which became effective 30 days after the announcement, affected many chip companies, leading to earnings revisions.

Of course, China opposed the move, according to an embassy spokesperson quoted by Reuters.

While chip stocks got hit hard as a result of this announcement, the U.S.-based AI sector saw gains, as investors took on an increasingly favorable outlook for such stocks. That’s because many AI companies faced limited competition from Chinese developers, enhancing the prospects for companies like C3.ai.

This burgeoning technology attracted investors, businesses seeking automation, and the general public seeking AI solutions.

What Now

C3.ai is a company that can certainly see some impressive growth in the coming years. However, the question one has to ask is how much are investors going to pay for that growth, and how much future growth is priced in? Time will tell on that front.

The geopolitical environment for C3.ai may be the best it’s been in some time, and if the company can see its growth re-accelerate, I think this is a stock with plenty of room to run.

However, while I’m cautiously optimistic about AI stock over the medium to longer-term, there are plenty of near-term headwinds to consider. Thus, I remain on the sidelines with this name for the time being.

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.