Shares of artificial intelligence (AI) company C3.ai (NYSE: AI) are enjoying a modest 3.5% rise in share price Tuesday morning (as of 11:40 a.m. ET) on positive news from Wall Street.
Investors can thank Oppenheimer for the good news — because it just upgraded C3.ai stock to outperform.
As StreetInsider.com relates, Oppenheimer first initiated coverage of C3.ai stock in June, but only with a neutral rating. Today’s upgrade to outperform is justified by a combination of C3.ai’s stock having gotten 20% cheaper in the interim, and the company issuing more realistic and achievable guidance.
In that regard, it’s worth pointing out that analysts like Oppenheimer have taken their cues from this guidance. According to Yahoo! Finance, whereas three months ago consensus forecasts saw C3.ai losing only $0.12 per share in its next earnings report, they now predict an $0.18-per-share loss.
Granted, that doesn’t sound like such great news. But Oppenheimer isn’t valuing C3.ai on its earnings (which it doesn’t have), but rather on its revenue. According to the analyst, the stock should sell for about 10x the revenue it’s expected to produce in fiscal 2025, given that “the AI theme is real and durable” and this may permit C3.ai to grow its revenue at as much as 23% by mid-2024.
I’m not sure I buy that argument, however. On the one hand, C3.ai stock costs $3.3 billion right now (just under $29 per share), and Oppenheimer thinks the stock is worth closer to $3.7 billion — or $40 per share. At the same time, however, the strong revenue growth that Oppenheimer is assuming hasn’t yet appeared. Sales growth last quarter, for example, was less than 11%.
More importantly, though, in the absence of profits I find it hard to assign C3.ai any value at all. C3.ai has racked up losses of more than $260 million already over the last 12 months, and analysts polled by S&P Global Market Intelligence see the company still losing money as far out as 2026 — and probably longer than that.
In light of the continued and probable future losses, I suspect C3.ai stock is really still a sell.
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