C3.ai Stock Up 22% Today – Time to Buy AI Stock?
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The price of C3.ai stock is up 22% this morning in pre-market stock trading action at $39.25 per share following news that the company secured a millionaire contract with the US Department of Defense (DoD).
In a press release published yesterday after the markets closed, the company said it secured a five-year transaction agreement that the contract will allow any agency within the DoD to acquire C3.ai solutions for modeling and simulations.
The total price tag of the agreement was established at $500 million. The figure represents almost 3 times the amount the company brought in revenue in the past year.
“The new Agreement has a DoD-wide scope, accelerating research projects in simulation and modeling and production deployments for operations and sustainment”, stated Thomas Siebel, C3.ai’s Chief Executive Officer.
Only a few days ago, C3.ai reported its financial results covering the second quarter of the 2022 fiscal year. For the three months ended on 31 October, the company brought $58.26 million in revenue resulting in a 41% jump compared to the same period a year ago.
Meanwhile, adjusted net losses per share landed at $0.23 or 3 cents below the figure reported in Q2 2021. This negative adjusted EPS was also 6 cents below the market’s consensus estimate.
However, the risk-off attitude that prevailed in the market back when the company reported these results led to an 11% single-day post-earnings decline in the stock price.
What can be expected from this artificial intelligence stock after today’s important announcement? In this article, I’ll be assessing the current situation of C3.ai stock to outline plausible scenarios for the future.
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C3.ai Stock – Technical Analysis
The price of C3.ai stock has been quite volatile since the company went public back in December last year. On two occasions, the price rose to the high 100s – one as a result of a post-IPO rally and the other during the meme stock craze that took place on January-February this year.
Shortly afterward, the price declined significantly while it posted an all-time low a few days ago right after the firm’s Q2 2022 earnings report came out.
The downtrend for C3.ai stock has accelerated since November and today’s uptick seems poised to retest the lower trend line highlighted in the chart. Depending on what happens after this former support line is tagged, the outlook for AI stock could be either bullish or bearish.
At the moment, momentum indicators seem to be favoring a short-term bullish outlook as the recent sell-off may have gone too far already. In this regard, the Relative Strength Index (RSI) is recovering from its lowest reading since C3.ai stock hit the trading floor while the MACD seems poised to cross the signal line – an event that is typically considered a buy signal.
Additionally, the MACD’s negative histogram readings are steadily decreasing and that points to an exhaustion in the wave of negative momentum that C3.ai stock has experienced.
All things considered, if the price breaks above the $43 level chances are that the stock could experience a short-term rally as this is a relevant area of confluence between the trend line support/resistance highlighted in the chart and AI’s short-term moving averages.
C3.ai Stock – Fundamental Analysis
C3.ai revenues have been steadily growing but, as many publicly-traded tech stocks nowadays, the company is operating at a loss.
During the first semester of its 2022 fiscal year, the company brought $110.67 million in revenue compared to $81.82 million it brought a year yet GAAP operating losses accelerated to $92.19 million compared to $17.85 million shed during the first semester of the 2021 fiscal year.
As a result, net losses jumped to $94.2 million, up from the $14.8 million the firm shed during the same period a year ago.
During this first semester, C3.ai burned around $20 million in cash. However, its liquidity and solvency are strong at the moment as it has around $970 million in cash, cash equivalents, and short-term investments at hand. Moreover, the firm has zero long-term debt.
At its current market capitalization of $3.4 billion, C3.ai is being valued at 13.5 times its forecasted revenues for the 2022 fiscal year – not including the impact of the DoD contract announced today.
This ratio is particularly stretched and creates room for further negative volatility down the road in case the market adopts a more conservative attitude toward valuation-rich stocks as it did last week.
Therefore, even though the short-term outlook for AI stock could be positive, the downside risks are too high and the upside potential seems limited in the current environment.
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