Hardly for the first time in recent months, artificial intelligence (AI) stocks were the talk of many in the investing world on Tuesday. One that received plenty of chatter was C3.ai (AI 1.68%), which received an analyst recommendation upgrade before market open. The stock closed nearly 2% higher as a result, but investors should remain cautious.
Turmoil at OpenAI
These stocks were in the spotlight because of the unexpected turn of events at bellwether generative AI company OpenAI. As the weekend loomed, its CEO Sam Altman was pushed out by the board of directors, which cited rather vague reasoning that he was not “consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.”
Wasting little time to poach the leader of the most prominent AI developer, Microsoft (an investor in OpenAI, by the way) announced Sunday it had hired Altman to lead a new AI unit at the tech behemoth.
While none of this directly affected C3.ai, investors were influenced by the goings-on at OpenAI. By drafting Altman — who, presumably, will be joined by some of the 700-plus OpenAI employees who sent a letter of protest about his firing to the company’s board — Microsoft is poised to quickly become an AI powerhouse.
This scared shareholders at C3.ai and other publicly traded AI companies, which tend to be relatively small. Such businesses might have a tough time competing against the heavily capitalized Microsoft in any AI niche. So that analyst upgrade — from Oppenheimer‘s Tim Horan — provided some comfort and encouragement for C3.ai investors.
C3.ai is still highly unprofitable, and that matters
Horan believes the pure-play C3.ai will soon post double-digit revenue-growth numbers, specifically by around 23% on a year-over-year basis in 2024’s second quarter.
While such growth is there for the taking in this white-hot segment of the tech industry, there’s also profitability to consider: C3.ai remains deep in the red. Until it can prove it’s able to reliably book a profit, the upside for its stock will probably remain limited.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.