We recently published a list of 10 AI News and Analyst Ratings You Should Not Miss. Since C3.ai Inc (NYSE:AI) ranks 10th on the list, it deserves a deeper look.
While everyone is talking about rate cuts, some analysts are questioning whether it was necessary even to start cutting rates at this time. Latest data released on Tuesday showed retail sales in the US rose while Wall Street analysts were expecting to see a decline. Oksana Aronov, JPMorgan Asset Management head of market strategy for alternative fixed income, said while talking to CNBC that rate cuts are not even warranted as she thinks there are no signs of broader weakening except for the labor market.
Aronov said cutting rates would “loosen” the financial conditions further. The analyst said that about 14 months ago, everyone was looking at the CPI that was clocking in at 3% and expected the metric to fall to 2%. But even after all these months, CPI year over year is at 2.9%. She said that the Fed should move carefully and the 2% inflation target would be “elusive” because fiscal spending will continue to rise.
AI investors are however looking beyond this debate and already positioning to pile into more growth stocks amid the beginning of the rate-cut cycle.
For this article, we picked 10 buzzing AI stocks and discussed the latest news around them.
With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
C3.ai Inc (NYSE:AI)
Number of Hedge Fund Investors: 18
Jim Cramer said while talking in a program on CNBC that at one time C3.ai Inc (NYSE:AI) had become a “meme stock.” Cramer said people once believed C3.ai was “the best way to play AI” but now they are having second thoughts.
Cramer said that C3.ai Inc (NYSE:AI) subscription business had “lumpy numbers” in the latest quarterly report.
Cramer highlighted C3.ai’s billings declined quarter over quarter.
“You can’t have a sequential, quarter over quarter decline in billings and expect people to buy into all your positive rhetoric,” Cramer added.
The decline in C3.ai Inc (NYSE:AI) share price was more or less expected amid high valuation and expectations. Investors were paying about 7 times forward sales for the company which is expected, in the best case, to burn through $80 million in free cash flow over the next few years, with projected non-GAAP operating margins of around 17%.
That makes it lag behind its peers in the SaaS world. For example, SentinelOne (S), according to some analysts, is expected to generate $100 million in free cash flow within the next year.
C3.ai Inc’s (NYSE:AI) shift to a consumption-based pricing model, which has lowered the average contract value, is also making the company’s long-term revenue growth less predictable. Companies moving to consumption models often put themselves at odds with their customers.
Wall Street analysts have a mixed opinion about the stock.
BofA Securities reiterated its Underperform rating, citing the company’s unfavorable growth and margin profile. The firm adjusted its estimates to match C3.ai’s guidance and lowered its price target from $24 to $20, highlighting limited visibility for accelerated revenue growth, margin expansion, and a rebound in its backlog.
Analysts, led by Brad Sills, pointed out that while C3.ai reported modest subscription revenue growth of 19.7% year-over-year (just above BofA’s estimate of 19%), its unchanged fiscal 2025 outlook suggests the company isn’t significantly benefiting from the broader AI adoption trend. C3.ai Inc (NYSE:AI) did see an increase in pilot deals, up to 52 in Q1 from 34 in the previous quarter, but these have not yet translated into meaningful subscription revenue growth.
Sills and his team also noted that C3.ai Inc (NYSE:AI) is still transitioning from a subscription model to a consumption-based model, which has been weighing on its remaining performance obligation (RPO). RPO dropped by a record 16% quarter-over-quarter, further clouding the timing of a potential bottom in this metric. Despite this, the company continues to invest in growth.
Overall, C3.ai Inc (NYSE:AI) ranks 10th on Insider Monkey’s list titled 10 AI News and Analyst Ratings You Should Not Miss. While we acknowledge the potential of C3.ai Inc (NYSE:AI), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.