C3.ai Stock: Tech Stock Down by 89% but Could Easily Triple

Why Contrarian Investors Should Look at C3.ai Inc

Artificial intelligence technology is quickly becoming a must-have in many of today’s applications. Artificial intelligence is expected to continue gaining traction as companies look for ways to improve their operations.

But the major issue for many companies is the high cost of developing artificial intelligence applications from scratch. To solve this problem, C3.ai Inc (NASDAQ:AI) provides software that helps companies build and develop their own artificial intelligence applications.

At first glance, C3.ai Inc appears to be a company that’s well positioned to benefit from the growth of the artificial intelligence solutions market. Yet, AI stock has been battered and discarded by investors. I view this situation as a good contrarian opportunity for risk-capital investors.

Consider that C3.ai Inc debuted on the stock market at a lofty $100.00 per share in December 2020 after pricing its initial public offering (IPO) at $42.00 per share.

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A few months later, in February 2021, C3.ai stock spiked to $176.94. Just over a year later, on May 12, 2022, AI stock sunk by 93% to $13.37 during a period of selling that reminded me of what happened to many stocks in 2000.

C3.ai stock has rallied by 37% from its low, but it’s still down by 38% this year and down by 89% from its high.

While C3.ai Inc’s high share price was clearly not justified, I view the subsequent selling as excessive, given the company’s strong underlying fundamentals and the rising demand for artificial intelligence solutions.

A look at C3.ai Inc’s top-line financial growth supports a bull case for AI stock. The company’s revenues increased in three consecutive fiscal years (ending April 30) from $91.6 million in 2019 to $252.8 million in 2022.

To properly execute its business plan, C3.ai Inc has a sound balance sheet with solid working capital, minimal debt, and $960.1 million ($9.04 per share) in cash.

The cash alone accounts for nearly half of C3.ai Inc’s market cap, which is impressive and suggests that C3.ai stock is undervalued.

Looking ahead, analysts estimate that the company’s revenue will grow by 24.0% to $313.4 million in 2023 and by 26.5% to $396.5 million in 2024. (Source: “C3.ai, Inc. (AI),” Yahoo! Finance, last accessed June 13, 2022.)

Significant Decline Means Big Upside for AI Stock

C3.ai stock’s price erosion presents an opportunity to contrarian traders. Since AI stock hit its high in February 2021 and fell, it has languished and failed to attract any firm buying.

The following chart shows C3.ai Inc’s corresponding weak relative strength.

Chart courtesy of StockCharts.com

The immediate targets for AI stock are its 50-day moving average of $18.66 and its 200-day moving average of $31.14.

The horizontal Fibonacci retracement lines on the above chart show a 61.8% retracement level around $76.46, followed by a 50% retracement level at $95.94.

Analyst Take

C3.ai stock moving back up to its euphoric high is unlikely for now, but given its price drop, I see a high potential for above-average price appreciation.

Note that insiders have been net buyers of C3.ai stock. Over the last six months, insiders added 680,189 shares of C3.ai Inc to their portfolios. (Source: Yahoo! Finance, op. cit.)

Therefore, investors might want to take a look at AI stock at its current price level. If the company can deliver financial growth and the broader stock market sentiment improves, I would expect a strong rally.