Following last month’s tech stock selloff, scores of high quality names have fallen to “can’t miss prices.” Pushed down by market uncertainties, not fundamentals, now may be the time to scoop some of them up for your portfolio. However…
that’s not the case for C3.ai (NYSE:AI) stock.
A provider of enterprise artificial intelligence (AI) software, C3.ai’s latest pullback was relatively modest compared to other big dives experienced earlier in 2021. Skyrocketing in price, right out of the gate after its initial public offering (IPO), the stock took a hard plunge from as much as $176.94 per share, down to around $60 per share, in early spring.
Then, it went on a continued slide, down to around $45 per share by November. Since then, when the tech stock selloff began, it’s now plunged to around $27.24 per share. After a nearly 84% plunge, you may believe it’s now in bargain territory. Unfortunately, instead of being a great “buy the dip” situation, as they say, buying it now could be more like trying to catch a falling knife.
Why is that the case, and why is it best to avoid it? Let’s dive in and find out.
AI Stock at a Glance
Like I mentioned above, C3.ai wasn’t always such a poor performing stock. Going public at $42 per share, it soared more than 130% on its first day of trading. Continuing to spike, it briefly pulled back, before surging once again in February 2021, hitting its above-mentioned all-time high of $176.94 per share.
Looking back, it’s easy to see why there was so much excitement around AI stock. For one, its founder was a well-respected tech entrepreneur (Tom Siebel) at the helm. In addition, at the time excitement was ratcheting up for AI/data analytics plays. With its plan to expand beyond its original customer base of energy companies, and pursue a much larger total addressable market (TAM), it seemed like a winner.
But not too long after the market’s exuberance for it peaked, it became clear shares moved up too far, too fast. As InvestorPlace’s Bret Kenwell pointed out in his Dec. 29 article on it, at its all-time high, C3.ai was trading for 100x sales (not earnings). Even as it was seeing its revenue growth accelerate, such a valuation was far from warranted.
Yet it was more than just a rich valuation that caused it to experience such a dramatic price decline. Over the past year, the hype around it has largely evaporated. There’s a big risk this continues, as its actual results keep on falling short of expectations.
C3.AI Has Much to Prove
Much of the pullback with AI stock stemmed from its rate of growth (while above-average) not being enough to sustain its high valuation. Along with this, in recent months, another factor has been playing a role. That would be the cracking of the “story” behind it.
Again, the narrative crafted around it was that it was on the verge of moving beyond its existing customer base. As seen in the most recent quarterly results, that’s clearly a…
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