Are in invested in enterprise artificial intelligence (AI) company C3.ai (NYSE:AI) for the long term, or are you expecting a moonshot in 2024’s first quarter? It’s fine to be bullish about C3.ai in general, but be sure to keep your expectations in check when it comes to AI stock. Otherwise, you won’t be prepared to ride out the speed bumps along the way.
There’s no denying that C3.ai stock performed well in 2023. Yet, C3.ai wasn’t the star of the show – not even close. So, don’t assume that the coming year will bring spectacular returns. If you plan to invest in C3.ai, the best strategy is to keep your position size small and don’t look at the stock price every day or even every month.
Could AI Stock Bring 10x Returns?
I don’t disagree with InvestorPlace contributor Joel Baglole, who identified AI stock as a possible target for 1,000% growth by 2030. This is entirely possible if the machine-learning trend persists beyond the hype phase.
And make no mistake about it: 2023 was the generative AI hype phase. Plus, the big move in C3.ai stock can’t fully be attributed to the company’s growth. Frankly, C3.ai only caught Wall Street’s attention because it rode the coattails of ChatGPT developer OpenAI and AI-processor superstar Nvidia’s (NASDAQ:NVDA).
Furthermore, C3.ai’s news page provided a few updates for December. There was C3.ai’s second-quarter fiscal-2024 financial report, which indicated 17% year-over-year revenue growth. This sounds like slow-and-steady growth, not the makings of another moonshot.
Besides, C3.ai’s subscription revenue, which is the company’s bread and butter, increased 12% year over year. Again, that’s decent but not mind-blowing.
C3.ai CEO Signals Large-Scale Capital Spend
Since C3.ai lost 59 cents per share in Q2 FY2024 on a GAAP-measured basis, one might expect the company to exercise strict fiscal discipline in order to achieve profitability. Yet, C3.ai CEO Tom Siebel seems to be signaling more spending, not less.
At the end of fiscal 2024’s second quarter, C3.ai had $762.3 million worth of cash, cash equivalents and investments. Let’s be generous and round that up to $800 million. Now, imagine you’re an accountant. Would you recommend that C3.ai should quickly spend that capital?
Siebel seems to suggest that C3.ai ought to invest in it rather than save it:
“I have almost $800 million in the bank… What else am I supposed to do with it? I’m investing it in the business. There’s an economic imperative to do it. To not do it would not be rational.”
Advocates of fiscal discipline might strongly disagree. There’s no guarantee that the generative AI hype train will keep rolling at the same speed in 2024 that it did in 2023. Consequently, if Siebel is hellbent on spending C3.ai’s capital in the near future, this could greatly impede the company’s near-term profitability prospects.
C3.ai Stock: Stay In, but Stay Small
Don’t get the wrong idea. C3.ai is part of the AI technology trend. However, it’s not pulling the sector forward like OpenAI and Nvidia are.
Additionally, C3.ai’s bottom line might suffer if the company spends a lot of money in 2024. Hence, investors should weigh the near-term risks of AI stock. The best strategy is to stay in the trade for years, not months. And most importantly, even if you fully believe in C3.ai, maintain a small position size at all times.
On the date of publication, David Moadel 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.
