Otherwise struggling enterprise artificial intelligence application platform C3.ai (NYSE:AI) became the toast of Wall Street just ahead of the weekend. News broke that the White House and the European Commission launched a first-of-its-kind AI agreement, according to Reuters. The initiative will involve accelerating and enhancing the use of AI across multiple critical applications. AI stock jumped 15% before extending gains in the late-afternoon session.
Per Reuters, a senior U.S. administration official discussed the initiative before the official announcement. Labeled as the first sweeping AI agreement between the U.S. and Europe, the deal seeks to leverage advanced technologies to improve agriculture, healthcare, emergency response, climate forecasting and the electric grid. Previously, the official stated, agreements on the issue had been limited to specific areas such as enhancing privacy.
Undergirding the landmark deal stands advancements in AI modeling or machine-learning algorithms that use data to make logical decisions. As Reuters stated, such protocols “could be used to improve the speed and efficiency of government operations and services.”
“The magic here is in building joint models leaving data where it is,” the senior administration official said. “The U.S. data stays in the U.S. and European data stays there, but we can build a model that talks to the European and the U.S. data because the more data and the more diverse data, the better the model.”
Naturally, the agreement bodes well for C3.ai and by logical deduction AI stock. According to its website, C3.ai provides over 40 turnkey enterprise AI applications covering multiple needs across disparate industries, such as manufacturing, energy and defense.
Opportunities and Challenges for AI Stock
One of the biggest factors bolstering AI stock is that the underlying company secured deals with top-level organizations. Recently, energy giant Shell (NYSE:SHEL) inked a deal with C3.ai to scale up its predictive maintenance program. This involves monitoring and maintaining more than 10,000 pieces of equipment in upstream, manufacturing, and integrated gas assets across its global asset base.
In addition, AI stock received a fundamental boost to its overall narrative from the U.S. Department of Defense. Specifically, the U.S. Air Force implemented C3 AI Readiness, an AI-based solution to effectively predict subsystem failure, identify necessary spare parts, and proactively highlight opportunities to increase mission capability, per C3.ai’s website.
Regarding the White House-European Commission deal, one of its main priorities focuses on electrical grid stability amid inclement weather conditions. Here, C3.ai offers directly relevant acumen. Earlier, French utility firm Engie (OTCMKTS:ENGIY) selected C3.ai to create and implement a platform for enterprise-wide digital transformation, in part to foster efficient energy management.
Still, the above case studies don’t present a holistic benefit to AI stock. Despite advancements in AI technologies, myriad challenges remain. For one thing, it’s not entirely clear that AI can advance operations as human intellect can intuitively and accurately respond to various circumstances.
Moreover, the Management Development Institute of Singapore criticized potential interpretive issues with AI algorithms. Essentially, as machine learning protocols become more complex, the output itself may lead to intense complexities, stymieing the decision-making process.
Why It Matters
Although the theoretical forecast for AI stock bodes well amid the aforementioned news item, actual performances have left investors frustrated. In the trailing year, shares still remain about 22% below parity despite today’s big move. Also, since its first public trading session, the security cratered by more than 85%.
Conspicuously, data from TipRanks reveals that AI stock features a consensus moderate sell rating. Also, analysts’ average price target implies a downside of nearly 22%.
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.