C3.ai Makes it 5 for 5

Brit Ryle

Posted March 3, 2023

In Monday’s article “Today’s Trading Plan” I told you that C3.ai (NASDAQ: AI) had beaten earnings expectations in each of the last four quarters. I suggested it for a trade because the share price was squeezing down into the corner of a pennant and a big earnings related move looked likely.

Well, yesterday afternoon C3.ai made it 5 for 5 on quarterly earnings beats, and the stock is busting higher this morning.

The company reported quarterly revenue of $66.7 million, a bit better than the $64.2 million that analysts were forecasting. But earnings per share came in way better than expected – just a $0.06 a share loss vs. an expected $0.22 a share loss. 

The stock jumped over $25 a share last night, after the report, and it’s holding that gain this morning. That’s a solid 10% gain from Monday’s trading range between $22 and $22.50. Yeah, I’m calling that a win…

It’s a funny thing: as I was telling you on Monday, I bought a few $29 strike calls a week ago, on Friday, February 27. I’m probably going belly up on those calls today, unless C3.ai can manage a 30% rally today…????

In my defense, I was expecting the stock to put in a little pre-earnings rally, which, really…didn’t happen.

However, if you accepted my invitation to simply buy the common shares, you’re doing pretty good. At least better than I am…

And I gotta say if you did go with the common shares, you’ve probably got some more uspsdie coming your way. Here’s why…

The Early Bird

Most of the artificial intelligence hype right now is driven by tech behemoths – Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOG), Meta (NASDAQ: META)

But C3.ai is a small company. Its valuation will be pushing $3 billion if today’s move higher holds. And it also is one of the first companies to have analytical AI products ready for companies to use. It has a little foothold in the AI market. Yes, it has some pretty impressive customers: Baker Hughes, Shell Oil, the Department of Defense, US Air Force…

And it has revenue, $269 million over the last 12 months. 

That clearly gives the company’s product some credibility. So does the fact that its products are available through all the big cloud players service – Microsoft’s Azure, Amazon Web Services and Google Cloud. 

It is reasonable to think that C3.ai’s early success can create some momentum for sales. A company interested in AI might say, “Well, the Department of Defense is using it, maybe we should give it a try…”

But the AI space is so young, it would be easy to think that these companies are dabbling in AI, trying to get a feel for what it may have to offer. And C3.ai’s offerings could be a nice way for these entities to get a feel for what’s available, to see what the potential is…

Plus, C3.ai has recently changed its pricing model from a full subscription price to a pay for what use model. No doubt some of its customers have said that they’d prefer to order off the a la carte menu instead of paying for a full meal. 

And rightfully so…because again, AI is in its infancy, companies want to get a feel for it, but they’re not going to be making major commitments to one platform or the other just yet.

Confidence Game

Two things about all that. One, it’s difficult to have a lot of confidence in C3.ai’s revenue if its customers (especially new ones) are trying to get a feel for how AI can help them. C3.ai has obviously had some success with its existing customer base. But that doesn’t necessarily mean it will continue.

Second, analysts lowered their revenue forecasts when C3.ai adopted the“pay for what you use” pricing model. But C3.ai is clearly showing confidence in its products. The company is willing to take a hit to revenue in order to get customers in the door, on the expectation that customers will like what they get, will stick around and increase their spending. 

I like that. And I think it bodes well for the stock put in a decent move higher. 

$27.88 is a good price level to watch. That was the closing price on February 6, when the AI hype machine went ballistic. C3.ai shares traded with a massive $6 range that day, nearly hitting $31 before it closed at $27.88. 

So if you bought into C3.ai on my recommendation from Monday, or from my original coverage of the stock on February 12, it’s worth it to stick around and see how this shakes out. 

That’s it for me today, take care, have a great weekend, and I’ll talk to you on Monday,

Briton Ryle
Chief Investment Strategist
Pro Trader Today
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