Is C3.ai Inc. (AI) the Worst AI Stock to Buy?


Is C3.ai Inc. (AI) the Worst AI Stock to Buy?

We recently compiled a list of the 10 Worst AI Stocks to Buy According to Reddit. In this article, we will look at where C3.ai Inc. (NYSE:AI) ranks among the worst AI stocks to buy.

In the lead-up to the September rate cut decision, analysts had expressed a variety of opinions regarding the 50 basis-point cut, with some supporting and others opposing it. Some of them suggested that lower interest rates could create opportunities in small and mid-cap stocks, which may benefit from a more favorable borrowing environment.

Officials at the Fed maintained the opinion that this timely monetary policy adjustment was purely based on economic data and wasn't politically motivated. Additionally, it isn't just influenced by recent employment data but rather as a part of a broader strategy established earlier in July, aimed at managing inflation while maintaining low unemployment rates.

Lower interest rates are now encouraging investors to reconsider their AI stock holdings or diversify their portfolios with a greater focus on AI investments. Cory Johnson, Chief Market Strategist at Futurum Group, discussed how the Fed's rate cuts have created a positive outlook for tech spending and venture capital investment, particularly in the AI and semiconductor sectors. His opinion was covered in another one of our articles, 10 Worst Artificial Intelligence (AI) Stocks To Buy According to Financial Media. Here's an excerpt from it:

Johnson's insights reflect an optimistic view of tech investments in light of the Fed's actions, suggesting that companies are exploring new opportunities within AI. At the same time, markets are seeing AI and EVs creating a new wave of power demand growth.

Michael Khouw, OpenInterest.PRO Chief Strategist, discussed that the stock market experienced a broadly lower performance recently, with the NASDAQ Composite suffering the most significant decline, down 0.5%. The S&P 500 also saw a decrease, giving up 24 points to close below 5,700, while the Dow Jones Industrial Average was down by 60 points at the time of reporting. Despite this overall downturn, the utility sector outperformed the S&P 500 year-to-date and may become even more attractive following recent interest rate cuts and as AI and electrification drive global power demand.

Khouw discussed the current state of utilities and acknowledged that while it may seem daunting to invest in a sector that has seen substantial gains, over 7.5% total return since the beginning of last year, it is still an opportune time to consider utilities as an investment. Historically, utilities have not been perceived as a growth sector, but Khouw emphasized that they are currently trading at about 19 times forward earnings, which is relatively high compared to their usual discount to the market.

He provided historical context regarding electricity demand, noting a significant increase in demand following World War II -- a 6.5-fold rise until stagnation began around 2007. He predicts that a new phase of growth in electricity demand is on the horizon, driven primarily by two factors: the rise of electric vehicles (EVs) and the increasing need for data centers fueled by artificial intelligence (AI). He estimates that by 2030, about 50% of vehicles on the road could be electric, significantly impacting electricity consumption. Additionally, expanding data centers to meet AI demands will further elevate electricity needs.

For investors looking to capitalize on this trend in utilities, Khouw suggested considering a major exchange-traded fund (ETF) that tracks utility stocks. He noted that the ETF has performed exceptionally well, gaining over 40% since October, but there are still investment opportunities. For those cautious about entering after such gains, he recommended using options strategies due to the relatively low premiums associated with utility stocks. Specifically, he proposed buying longer-dated call options and potentially selling downside puts as part of a diagonal risk reversal strategy.

This landscape indicates a promising rise in AI stocks, driven by the increasing recognition of AI's transformative potential across various sectors. As electricity demand surges, fueled by the rise of EVs and the expansion of data centers necessary for AI operations, investors are likely to see significant growth opportunities in AI stocks as well. In that context, we're here with a list of the 10 worst AI stocks to buy according to Reddit.

Methodology

We sifted through various Reddit threads to compile a list of 15 possible AI stocks with a short interest between 10% and 25%. We then selected 10 stocks with the highest short interest. We have also mentioned the hedge fund sentiment for each stock, as of Q2 2024. The stocks are ranked in descending order of the number of hedge funds that have stakes in them.

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) is a technology company specializing in enterprise AI, providing a comprehensive suite of products that use AI to empower businesses. It allows companies to rapidly develop, deploy, and manage large-scale AI applications for various uses, and also offers pre-built, industry-specific AI applications for specific business challenges.

Its GenAI products were deployed across 15 industries and had 50,000+ inquiries in the closing fiscal quarter of 2024. In July, it achieved the AWS GenAI Competency, recognizing it as a leading AWS Partner with a successful track record in implementing GenAI technologies. It launched C3 GenAI for government programs It also recently received recognition from Constellation Research as a leading provider of AI and ML platforms.

In FQ1 2025, the company saw a 20.52% year-over-year rise in revenue, recording $87.21 million. This rise was lower than the one seen in FQ4 2024, due to tightening corporate budgets for IT and software amid macroeconomic concerns. Still, the growth was driven by subscription revenue that added $73.5 million, up 20% from a year ago, representing 84% of total revenue.

The company closed FQ1 with 71 agreements, marking a 117% year-over-year increase in new pilots (72 total), and also solidified its presence in state and local government with 25 new agreements. It formed 51 new partnerships, of which 72% of deals were closed through its partner ecosystem. Partner-supported bookings grew by 94% and signed 40 agreements with Google Cloud.

The company is facing challenges as it nears the renewal of its Baker Hughes partnership, which expires in April 2025 and accounts for over a third of its revenue. The partnership has experienced various revisions and controversies over the years.

C3.ai Inc. (NYSE:AI) stands out in the enterprise AI sector which positions it for long-term growth as the value of AI shifts from hardware to software. Analysts recognize this company as a leading AI stock due to its strong market presence and effective execution strategies.

Bireme Capital stated the following regarding C3.ai, Inc. (NYSE:AI) in its fourth quarter 2023 investor letter:

Overall AI ranks 6th on our list of the worst AI stocks to buy. While we acknowledge the potential of AI as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA 'Has Become A Wasteland'.

Disclosure: None. This article was originally published on Insider Monkey.

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