Wait for C3.AI to Get Back to $26 Before Buying AI Stock

  • Lawyers are here to help C3.ai (AI) investors
  • Shares of AI stock may offer heavily-discounted value to be unlocked
  • AI stock is a bearish short for risk-tolerant, trend-following investors
C3.ai billboard is seen in South San Francisco, California. C3.ai is a leading enterprise AI software provider for accelerating digital transformation.

Source: Tada Images / Shutterstock.com

Covid-19. Russia. General uncertainty. If you’re an investor in the market, we feel your pain. But if you happen to be a shareholder of C3.ai (NYSE:AI), some help is on the way for that AI stock position.

Or is it?

It’s been a mostly ugly 2022 for stock investors. And broadly, nowhere has that pain been felt more than in higher-multiple growth stocks.

In fact, while the tech-heavy Nasdaq has surrendered 14%-plus year-to-date, many growth plays began to unravel like a ball of twine in 2021. Just ask investors of Zoom Video (NASDAQ:ZM), Fastly (NYSE:FSLY), fuboTV (NYSE:FUBO) and many others — including AI stock.

Lawyers are now lining up with class action suits, with the price over 80% removed from AI’s well-cheered initial public offering (IPO) in December 2020. In a nutshell, investors are said to have been wronged by a “shaky” partnership with Baker Hughes (NASDAQ:BKR) and hidden challenges in its sales department.

I’m sure they’ll have their day in court. Today, though, let’s check in with less “he said, she said” items of interest to prospective AI stock buyers.

AI C3.ai $19.69

AI Stock’s Mounting Woes

C3.ai (AI) downtrend in motion likely to stay in motion
Source: Charts by TradingView

The bear argument in AI stock has little to do with waiting on those lawsuits to be decided, though C3.ai’s resident short interest of 21% may be interested in items like the joint venture (JV) with Baker Hughes.

The bears’ collective involvement is probably less about fair JV disclosure from a couple years back and more about AI having too many eggs in one revenue basket. There’s also the more recent development that’s found Baker Hughes investing in Augury, a software shop offering similar services. That could negatively impact AI’s business.

Somewhat distressing, C3.ai has also seen three CFO departures and remains buried in red ink for the foreseeable future.

Lastly, bears might be quick to point out AI stock’s longstanding downtrend. Remember the old adage — a trend in motion stays in motion.

AI Stock Bulls Look to the Future

AI stock’s massive correction has left shares trading at a measly $2.2 billion valuation and a more reasonable nine times next year’s sales when viewed in conjunction with the likelihood C3.ai can grow its revenues around 30% the next few years.

So take that, bears! Right?

AI bulls might also side with InvestorPlace’s Will Ashworth rather than the lawyers. Will was puzzled over the notion of a misleading Baker Hughes relationship when the latest quarterly results revealed 32% of AI stock’s business was still with the energy tech giant vis-à-vis Baker Hughes’ also selling C3.ai’s products and services to third parties.

Further and if some investors are concerned that’s still too much exposure to one customer, AI stock is offering good news elsewhere.

Recent contracts including a multi-year $500 million deal with the U.S. Department of Defense should help diffuse those concerns. Coupled with C3.ai’s “lighthouse” strategy of securing new clients on the back of its larger enterprise and government deals, that means more wins could be in the offing.

Lastly, with AI stock now on the other side of a costly sales reorganization and access to a decent $1 billion war chest, C3.ai is down but hardly out.

Trade Takeaway in AI Stock

AI stock offers something for bulls and bears alike, but given everything discussed, I’d be wary of being a bull in AI stock with no indications of bottoming and as stated, more of a situation suggesting the trend will continue.

The reality is that compared to Thursday’s sub-$20 closing price, it would take a rally through $25.50 to $26 before a bullish consideration out of the channel could be entertained.

Further and with shares also signaling an overbought bearish stochastics crossover, the price chart has one more layer of protection suggesting the bears remain on the right side of AI’s trend.

That being said and for investors wishing to tag along with C3.ai’s heavier short interest, an out-of-the-money June or July long put, or bear put spread will allow for positioning through early June’s earnings event with ironclad risk and leveraged profit potential.

On the date of publication, Chris Tyler 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.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2022/04/wait-for-c3-ai-to-get-back-to-26-before-buying-ai-stock/.

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