In a stark reversal, C3.ai (NYSE: AI) witnessed a sharp decline in its stock price, with a plunge of over 11% on Thursday. This dip has pushed the shares to a low of $28.18, marking the lowest level since May 25th. The broader picture reveals a significant drop of more than 41% from its peak this year.
AI hype loses steam
The latest buzz surrounding artificial intelligence (AI) took a hit as C3.ai’s shares experienced a notable downfall. Despite Nvidia’s impressive performance, where the company’s revenue and profitability soared on the back of heightened demand for AI chips, concerns about the industry’s trajectory have come to the forefront. Notably, this unease has manifested in the decline of stocks belonging to major players such as AMD, Microsoft, AITX, and C3.ai.
C3.ai’s downward trajectory
C3.ai’s shares have been in a downward spiral since reaching their pinnacle in June this year. This trend can be primarily attributed to concerns about the company’s valuation and growth prospects in the new AI landscape. From a valuation perspective, C3.ai currently holds a market capitalization exceeding $3.7 billion. While the company’s annual revenue increased from $183.2 million in 2021 to $252 million in 2022.
Its performance remains overshadowed by a continuous stream of annual losses. The cumulative loss over the past four quarters exceeded $269 million. This financial standing raises questions about the company’s perceived overvaluation, evident in its price-to-sales (P/S) multiple of 13.90x. In contrast, more fairly valued firms maintain a P/S multiple below 5x.
Prospects in Question
The crux lies in whether the AI hype will eventually translate into robust revenue and profitability for C3.ai. Recent results indicate a milder growth trajectory, with the company generating $72.41 million in Q4’23, reflecting a marginal 0.13% year-on-year increase. This tepid performance raises concerns over the sustainability of the AI momentum, a sentiment previously alluded to in analyses that compared AI to other market hypes like electric vehicles, the metaverse, and green energy.
Technical analysis and future projections
The daily chart reveals a pronounced bearish trend in C3.ai’s stock price over the past few months. Notably, a bearish breakout occurred below a crucial support level at $34.51. The peak reached on April 3rd. The bearish sentiment is further corroborated by the shares’ movement below the three lines of the Williams Alligator and the 50% Fibonacci Retracement level.
These indicators suggest a potential continuation of the downward trajectory in the weeks ahead, with sellers potentially targeting a pivotal support level at $20. This level represents the 78.6% retracement point and implies a decline of approximately 30% from the current stock price.
As C3.ai navigates this challenging period, the larger AI landscape stands at a crossroads, with questions about sustained growth and profitability taking center stage. The market’s response to this situation remains keenly observed, especially as concerns about overvaluation and slower-than-expected growth cast a shadow on the industry’s immediate future. The AI market’s fate will likely depend on how companies like C3.ai adapt and innovate to address these challenges.
The recent sharp decline in C3.ai’s stock price highlights the waning enthusiasm surrounding AI stocks. Despite impressive results from other industry giants, concerns about valuation, growth prospects, and the ability to convert AI hype into tangible financial gains have triggered a notable setback. As the market continues to evolve, only time will reveal whether AI can recapture the momentum it once enjoyed.
