Enterprise artificial intelligence firm C3.ai (NYSE:AI) became a publicly traded company not too long ago. Yet, AI stock is already recording daily average trading volumes in the millions.
Don’t get the wrong idea – C3.ai isn’t a brand-new company. In fact, it’s been around since 2009. Over the years, C3.ai established itself as a leader among enterprise artificial intelligence software providers.
If you’re predicting growth of the machine learning sector in the coming years, then you could easily build a bullish case in favor of owning AI stock.
But before you jump in and grab the shares with both hands, you might want to take a step back. As we’ll see, the experts on Wall Street aren’t all enthusiastic about AI stock. And, their mixed reviews might cause you to have second thoughts about buying the shares.
A Closer Look at AI Stock
On Dec. 8, C3.ai officially priced of its initial public offering (IPO) of AI stock at $42 per share, with 15,500,000 shares offered at that time. The stock was publicly available for trading the next day.
The company’s previous IPO target range was $36 to $38 per share. Thus, there had already been some share-price inflation in effect, even before the public could get their hands on AI stock.
However, there would be much more price inflation to come for AI stock. Specifically, the stock would actually start trading at $100. Moreover, frenetic buyers would quickly bid the share price up to $183.90 on Dec. 23.
For cautious and contrarian investors, this smacks of IPO mania. 2020 was a time when IPO’s and special purpose acquisition companies (SPACs) were super-abundant. Some folks might wonder whether this is a speculative bubble that’s about to burst.
On Jan. 8, AI stock settled at a still-lofty $143.63. Meanwhile, the company’s trailing 12-month earnings per share was -24 cents. For a stock with so much hype and price inflation, having negative earnings per share isn’t a positive sign.
Seeing the Opportunity
Since AI stock is still fairly new, Wall Street analysts are just now starting to initiate their coverage on it.
Some analysts are optimistic about C3.ai. That’s understandable. The company develops and sells artificial intelligence software for business applications, and that’s undoubtedly a market with a strong growth trajectory.
Wedbush analyst Daniel Ives clearly sees an opportunity for prospective investors here. He started his coverage of AI stock with an “outperform” rating, citing that “the secret sauce of the C3 architecture makes it easy to deploy and scale within a given enterprise.”
Noting the addressable market of $270 billion, Ives further cited C3.ai’s “product portfolio that is unmatched in the enterprise landscape.”
The Wedbush analyst additionally asserted that C3.ai “has the ability to further penetrate enterprises and governments across the board over the coming years.”
Valuation Concerns
Ives’s optimism is duly noted, and his points are valid. However, not every Wall Street expert is quite as enthusiastic about AI stock.
For instance, citing the stock’s valuation, Bank of America analyst Brad Sills initiated his coverage on AI stock with a “neutral” rating.
Even worse, Morgan Stanley initiated its coverage on AI stock with an “underweight” rating. With this, the firm cited C3.ai’s high trading multiple versus the company’s estimated 2022 revenue.
Moreover, Canaccord Genuity started its coverage of AI stock with a “hold” rating. With that, Canaccord analyst David Hynes asserted, “investors are already pricing in the best-case scenario” for the stock.
The Bottom Line
I’ve attempted to present both sides of the coin – bullish and cautious – so that you can form your own conclusion about AI stock.
There is undoubtedly a bullish argument to be made as C3.ai’s addressable market is huge. However, if you’re a value-focused investor, then you might choose to avoid AI stock altogether.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
