Separate the Wheat from the Chaff
Readers should be careful about being the last ones getting into this generative AI craze.
I’m not saying it is over, but the last ones in can sometimes be the first one’s out.
The data shows that retail traders are pouring into AI stocks in droves without the inside knowledge they really need to succeed.
The truth is that not every AI stock is worth investing in and as time goes by, we will see this play out.
The market is always right.
Some AI stocks will just be a flash in the pan, riding on the coattails of the real AI stocks in a fake-it-to-make-it fashion.
Others could get bought out and shut down which was an infamous Facebook strategy called “catch and kill.”
C3.ai could be one of those stocks that I am talking about.
The stock spiked on the pandemonium almost quadrupling in price from around $12 per share to over $45 in the first half of the year, but the stock has come back to reality trading around $31 per share at the time of this writing.
The recent underperformance is due a good quarterly earnings result, but they offered underwhelming guidance to investors. This could become a recurrent problem for these smaller AI stocks that must promise heaven and earth to entice the incremental investor.
C3.ai said it expects total revenue of up to $72.5 million in its upcoming quarter, compared to analyst estimates of $71.3 million.
The management is on record for saying that while it will be a bumpy road, they believe C3 is currently participating in an $800 billion AI transformational opportunity over the next decade.
C3.ai has struggled to sign new major customers and recently shifted to consumption pricing — paying for software based on use rather than in a flat subscription — to court companies that are hesitant to commit to big contracts. The company said it inked 43 agreements in the quarter, including 19 pilots, and touted that the average sales cycle shortens to 3.7 months from 5 months in the same period a year ago.
Still, many are searching for a scalp from C3.ai.
The short side is stacked with traders looking to profit off a big dive in the price of shares.
Short interest amounted to about 29% of shares available to the public as of May 24.
Activist investors have accused the company of chasing trends and employing poor accounting practices.
Former employees said C3.ai has routinely overstated the readiness of its technology in the past, and this issue has not been put to bed yet.
It could be that C3.ai isn’t ready for showtime.
Maybe they are a few years away, but overstating their capabilities to get in on the action could be the best way for management to get rich quickly.
As sometimes in corporate America, it is better to cash out and strike while the iron is hot while they can before they are exposed as an inferior version of what they claim to be.
