C3.ai stock jumped more than 6% Tuesday, and have recovered from a rout in artificial intelligence stocks last week. Is C3.ai stock a buy now?
Shares fell after previously hitting a resistance at the 50-day moving average, and dropped 5% on Monday last week after news that DeepSeek's artificial intelligence model costs just a fraction of its U.S. counterparts. That triggered a sell-off in AI stocks.
But the stock reversed higher the next day amid news that the enterprise AI software maker had won an "awardable" status as a vendor for the Department of Defense's Tradewinds Marketplace — the Pentagon's framework for sourcing, funding and developing solutions to challenges that emerge from artificial intelligence and machine learning applications.
C3.ai holds a record of several years of Defense Department implementations. Shares rose in sympathy on Dec. 23 after AI company Palantir was reported to be teaming up with Anduril to form a defense consortium. Palantir has huge government and defense contracts.
But while Palantir was 2024's top S&P 500 gainer and rose 341%, AI stock gained just 20%. The S&P 500 returned 23%.
Trump's AI Infrastructure Plans
On the second day of his presidency, Trump revoked a rule that required AI developers to declare the results of their safety tests to the government before making them public. While that may not have a direct bearing on C3.ai, the pro-AI move lifted the stock.
Shares also rose after Trump announced Stargate, a $500 billion plan to build AI infrastructure.
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Earlier, the outgoing Biden administration released last-minute regulations in January that will impose huge restrictions on artificial intelligence chip exports. Ken Glueck, executive vice president at software database leader Oracle, noted that the restrictions "will turn the U.S. cloud industry upside down" and reduce the global chip market by 80% for U.S. chipmakers. AI stock fell 4.5% that day.
In November, shares rose after Goldman Sachs' 2025 forecast pointed to what it calls a Phase 3 shift in the AI revolution in which software and services companies generate revenue from AI applications. These offered investors longer-lasting growth and relied less on economic expansion or interest rates, Goldman said. Earlier phases focused on AI infrastructure.
Second-Quarter Results, Trump Rally
Shares of C3.ai stock rose after second-quarter results were announced Dec. 9. Sales grew 29% to $94.3 million while the company reported a loss of 6 cents per share. Analysts expected $91 million in sales with a loss of 16 cents per share vs. a year-ago loss of 13 cents.
On Dec. 18, shares fell amid Chief Executive Thomas Siebel's warning about an AI bubble. Shares fell 7% and headed even lower the next day after an analyst downgrade, falling 10%.
Siebel noted in an interview on CNBC that markets were over-evaluating the AI technologies. "There is a bubble. When there are technological breakthroughs, the market tends to overvalue them," he said. He added that "it will correct at some point."
Meanwhile, KeyBanc Capital Markets analyst Eric Heath downgraded the stock to underweight from sector weight Dec. 19. He cited concerns about subscription revenue growth and revenue estimates that may be too high. The stock sold off 10.7% that day.
AI stock rose 2% on Dec. 4 after earnings reports from software titan Salesforce showed that the Dow Jones component was on track with its latest artificial intelligence agents product, called Agentforce.
Microsoft Cloud Partnership
On Nov. 19, the AI play announced that Microsoft will extend its partnership and provide cloud computing services through Azure to the artificial intelligence company. AI stock soared 24.2%, it best day since May 30, 2023, when it rocketed 33.4%, according to Dow Jones Market Data.
Microsoft and C3.ai entered into a partnership in 2018 to provide enterprise AI services to several companies.
The enterprise software company has not been idle on the technology front, either. In late October, C3.ai won a patent for its AI Agent technology. Compared to copilots that assist and answer queries, AI agents can act and perform tasks on their own.
Shares of AI stock got a lift early November after election results triggered the Trump rally.
Relative Strength Slips For C3.ai Stock
C3.ai has a Relative Strength Rating of 88, a decrease from 92 four weeks ago. Investor's Business Daily recommends focusing on stocks with an RS Rating of 80 or above.
Its November rally helped the stock outperform the S&P 500. The stock soared 51%, well above the S&P 500's 6% monthly gain. But in December, shares dropped 7% while the S&P 500 fell 2.5%.
Shares also underperformed the benchmark index in January, falling 9% while the S&P gained 2.7%.
Shift In Pricing Model
Industry trends have worked in C3.ai's favor. The stock skyrocketed Feb. 1, 2023, when users successfully tapped OpenAI's ChatGPT artificial intelligence app to generate answers, texts, emails and even write books.
The ChatGPT app reached 100 million monthly active users in two months, beating popular apps like TikTok and Instagram. OpenAI's app uses natural language to help users write emails, write code and find answers to daily questions.
There are other considerations. In December 2022, C3.ai changed its pricing model from subscription to consumption-based pricing.
The move brought the company in line with industry standards for software-as-a-service providers. The practice is common across Amazon.com's Amazon Web Services, Alphabet's Google Cloud and Microsoft's Azure, as well as smaller players.
Consumption pricing works like a utility bill. That is, the higher the consumption, the pricier the service. Since AI customers will benefit from having access to an AI enterprise platform with unlimited use and developer licenses, the switch to consumption pricing could drive revenue growth, but not immediately.
C3.ai CEO Siebel indicated the consumption-pricing model will also lower barriers to entry because companies do not have to be tied to long contracts.
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Is C3.ai Stock A Buy Now?
Redwood City, Calif.-based C3.ai makes software applications equipped with artificial intelligence that can be configured for different purposes.
The software can make networks more reliable by detecting fraud, balancing inventory and demand, solving supply-chain issues and increasing energy efficiency. It can also help defend against money laundering.
The enterprise software stock popped on its first day of trading, Dec. 9, 2020. Shares leaped from their initial public offering price of 42 to finish at 92.49 that day.
C3.ai stock is prone to drastic swings. On Nov. 20, 2023, C3.ai stock jumped more than 5% but reversed lower to close with a 4.3% loss when Sam Altman was ousted as chief executive from another artificial intelligence specialist, OpenAI.
Altman quickly returned to OpenAI, but the news apparently triggered speculative trading as the market continued to search for leaders in the space.
C3.ai stock holds a Composite Rating of 80 while the EPS Rating lags at 47 due to the company's losses.
AI stock has recovered last week's 4.5% loss as it heads higher this week, but it remains below the 50-day moving average. The relative strength line, which compares the stock with the S&P 500, has also fallen sharply in this year.
Until the stock regains the 50-day line and builds a base, AI stock is not a buy now.
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