Having no position in data analytics and artificial intelligence specialist C3.ai (NYSE:AI), I’m really looking at the pain in AI stock from an outside and largely uninterested perspective.
That is to say, I’m not here to suggest a bullish nor bearish position. Rather, I’d like to explore what might be going wrong.
On paper, the company features a mixture of pros and cons. For the optimists, they can point to solid growth over the last three years, which has ranged from revenue of $91.6 million in the fiscal year ended April 30, 2019 to $183.2 million in fiscal 2021.
On the not-so-pleasant side, investors of AI stock will certainly wonder when the underlying firm will become profitable. Net losses have expanded from $33 million in 2019 to $55.5 million in 2021. In addition, the net loss on a trailing 12-month basis is $135.1 million, a figure which certainly raised eyebrows.
However, fresh technology firms aren’t always profitable. Indeed, a large number if not the majority are banking on growth to be sizable enough to eventually turn on the profitability spigot when ready. So, the red ink on the bottom line doesn’t quite seem to justify the horrendous losses for AI stock.
On a year-to-date basis, shares are down 28%. In the trailing year, AI stock has plummeted 80%. As I write this, the security is trading hands for under $23 a pop. Between late 2020 and early 2021, though, AI commanded a three-digit price tag.
But that’s an opportunity for the contrarian, right?
Maybe. I’m not going to rule it out. However, former heavyweight champion of the world Mike Tyson probably gave the best assessment of AI stock: “Everyone has a plan until they get punched in the mouth.”
Geopolitics May Have Exposed AI Stock
Interestingly, the quote above left Iron Mike’s lips when a reporter asked him if he was worried about fighting Evander Holyfield, specifically his game plan. Though the latter eventually won the fight, the point that Tyson was making was that brute force tactics can discombobulate the most beautifully designed strategy.
When it comes to AI stock and other data analytics firms with exposure to government (i.e. defense) contracts, the reckless invasion of Ukraine by Vladimir Putin’s Russia is about as big of a discombobulating event as there ever could be in the modern world.
In fact, foreign policy experts suggested that many Moscow insiders thought Putin was bluffing when he was threatening to invade Ukraine. Talk about a punch in the mouth!
Although the underlying applications of AI stock don’t directly relate to the Ukraine crisis, the conflict exposes a weakness of all AI-related initiatives: self-intelligent platforms are only as good as their inputs. As Putin demonstrated, it’s impossible to account for all scenarios. Heck, it might even be impossible to account for most scenarios.
To put it another way, AI stock may largely depend on a certain level of predictability; for instance, the time a helicopter can go out on missions before it requires maintenance work. That kind of data can be extrapolated from years of established information.
But what to do about an entirely fresh and dynamic situation? With Putin’s decision to invade Ukraine – and take his country down a dark path of condemnation and isolation – it apparently shocked those closest to him. Certainly, it’s going to shock an AI platform that relies on historical data to spit out event probabilities.
Back to the Drawing Board
Another element in the conflict that should get as much coverage as possible is the incredible and inspirational defense that the Ukrainian people are putting up, even down to President Volodymyr Zelenskyy, who is refusing to stand down.
From all the analyses that I read prior to the invasion, this was supposed to be a cakewalk for the Russians. It’s anything but. So, that’s another element that is dynamic and unpredictable for something like AI stock: how do you account for the resilience of the human spirit?
Although I don’t turn to boxers for erudite analysis, Tyson was spot on. Everybody does have a plan until they get punched in the mouth. And there’s been a lot of punching going on, which has people questioning the whole idea of data analytics.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.