Any AI stock forecast has to consider that the space had a fantastic year last year but 2024 is starting off as a bit of a mixed bag. While the industry leaders are off to the races again, smaller AI stocks trying to establish themselves are having a slow start. Put C3.ai (NYSE:AI) in the latter category.
After surging 170% in value in 2023, AI stock is down 6.5% in the new year. The AI software platform’s last earnings report showed the potential C3.Ai has but also the problem it faces. That’s why my AI stock forecast says becoming profitable could be the biggest hurdle it faces.
AI Stock Forecast: A Reassessment
The market is rewarding AI stocks that offer investors both revenue growth and profits. Although the industry is still in its infancy and has a long runway ahead, investors are already becoming choosy.
Think of last year as the euphoria of discovery of a new market opportunity. Money poured into any stock with the most tangential relationship to AI. Many companies tried to associate themselves as “AI stocks” by simply incorporating AI into their apps. This year investors sobered up.
They are still rewarding companies with a proven track record like Nvidia (NASDAQ:NVDA) and C3.ai competitor Palantir Technologies (NASDAQ:PLTR) but are withholding judgment on others. C3.ai may have the most to prove.
In all frankness, the enterprise AI platform keeps pushing its promise of profitability further into the future. The timeline for non-GAAP profits shifted from 2024 to a window between Q2 and Q4 of 2025. In December that was nudged further back into the second half of 2025. Don’t be surprised if investors are told next quarter to wait until FY2026 for profits to materialize.
Worse, losses are growing too. C3.ai updated its guidance last quarter to full-year losses of $125 million at the midpoint of its range. That’s nearly triple last year’s losses. Mounting losses and ephemeral promises of profitability are worrisome for the AI stock.
On the surface, the rationale seems reasonable. CEO Tom Seibel says C3.ai wants to pursue the brass ring of generative AI. “I believe that it more than doubles the size of our addressable market overnight,” he told analysts. The company will invest in various areas to capture market share quickly. It sees this as a trillion-dollar opportunity.
To do so, it will build on its “14-year investment in the C3.ai platform.” That harkens back to when the company was first called C3 Energy and targeted utilities. It’s been through several transformations over the years. For a while the company was called C3 IoT as it sought to capitalize on interest in the internet of things. Now AI is the hot trend and the company rebranded once more.
Patience is a Virtue
I continue to urge investors to use caution with C3.ai. Artificial intelligence is going to make millionaires out of investors backing the right horse. There is intense competition as companies jostle for position. Palantir, for example, does a lot of what C3.ai wants to do but does so better and profitably.
Of course, it took Palantir time to become profitable. Last year was its first posting GAAP profits, though it had been profitable on an adjusted basis for some time. C3.ai hasn’t even reached that stage yet.
It has several strategic partnerships in the tech sector, energy, and with defense contractors. It shows C3.ai has something to offer. Yet in an arena where the market is asking for stocks to put up or shut up, this AI stock may be one to pass on.
If the opportunity is as great as suggested, there will be plenty of opportunity to buy in at a later date when it overcomes the profitably hurdle.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.