Few investors paid attention to artificial intelligence (AI) platforms C3.ai (AI 8.30%) In 2022, with the Federal Reserve aggressively raising interest rates to fight inflation, there was little interest in speculative unprofitable growth companies. fell.
Since early 2023, investors have been fascinated by the new capabilities of AI applications. It took a little while for C3.ai to catch the attention of investors. The stock is up 113% year-to-date. But the company’s fundamentals are still unimpressive in a market where economists debate whether a recession is on its way.
Investing in C3.ai could give you an early entry into new and exciting technology, or will it just be a hit-or-miss investment? How will a slowing economy affect your business?
Let’s find out.
We provide complete solutions for businesses
Almost every business today wants a digital transformation. This means integrating technologies that generate, store, or process data into all areas of the business.
Since the pandemic made digital transformation imperative, many corporate information technology departments have started to combine custom AI platforms to develop enterprise-specific AI applications. Unfortunately, these scientific experiments yielded less-than-ideal results.
C3.ai is one of the few AI vendors that offers an end-to-end platform with everything you need to develop, deploy, and operate AI applications at scale.
Management believes the addressable opportunity is about $600 billion, a market that is barely penetrated today.
Image source: C3.ai.
One of the big reasons bullish investors believe C3.ai can monetize the opportunity is that companies are staying away from AI vendors that offer only partial solutions. Instead, we choose vendors that offer functional, turnkey, industry-specific AI applications that our clients can use right out of the box. It’s in the wheelhouse of C3.ai.
There are already 42 enterprise AI applications in the market, used by prominent clients in financial services, utilities, health, manufacturing, defense, intelligence, and other industries.
Image source: C3.ai.
This company has high long-term benefits if it continues to attract quality customers. On the other hand, however, dark clouds are looming over the near-future horizon.
ChatGPT could boost stock prices
After the company unveiled its C3 Generative AI product suite on Jan. 31, its stock surged 56% in six days.
Behind the price surge were many investors excited to integrate the C3 generative AI product suite Chat GPTis an app released as an online demo by OpenAI at the end of November 2022. After many people tried the demo, the public was fascinated by the possibilities of this technology. ChatGPT can understand text-based queries and respond in ways that are almost indistinguishable from how a human would reply. as a result, It quickly became an internet sensation and the fastest growing app of all time. Since OpenAI is still private, investors have decided to buy his C3.ai to join the frenzy surrounding the new technology.
The problem for the C3.ai bulls is that ChatGPT’s high rally comes with considerable risk. First, OpenAI has not perfected the technology yet. When responses are relied upon in mission-critical or health applications, plausible-sounding but incorrect responses can be generated that can cause real-world harm. So if this chatbot makes a big mistake, investors could quickly flee the stock.
Second, big names like OpenAI co-founder Elon Musk are calling for its regulation, and at least one member of Congress is pushing for AI regulation. But of course, investors have always had to be aware of the risk that government regulation could slow technology adoption and monetization.
So, despite the hype, it may take longer for OpenAI and other companies experimenting with ChatGPT clones to benefit from the technology. If Wall Street gets it, the bubble that sent C3.ai’s stock soaring could burst.
A recession would be bad for the company
C3.ai’s second quarter fiscal 2023 revenue shows a slowdown in quarterly year-over-year revenue growth. It’s unprofitable and negative free cash flow.
AI Revenue (Quarterly YoY Growth) Data by YCharts
C3.ai uses a consumption-based pricing model, but this model often performs badly during recessions, as customers often reduce their consumption to cut spending. Given that the economy could enter a recession in 2023, its fundamentals could deteriorate further and the rally in stocks could end soon.
If you’re investing cautiously during this downturn, you should probably sell this stock, especially given the recession risk and the ChatGPT hype that’s driving it up so fast. .
