Artificial intelligence stocks had an excellent year in the markets. While C3.ai (NYSE:AI) stock didn’t quite match the performance of Nvidia (NASDAQ:NVDA), up 247% through Dec. 28, it did manage to deliver a 176% return for its shareholders in 2023.
There’s no question that AI was one of the top investment stories of 2023. Undoubtedly, this technology will remain a key focus of Wall Street in 2024. Consider that 14 analysts currently cover AI stock. I’d be shocked if that total didn’t reach 20 or more in the year ahead.
While analysts aren’t sold on C3.ai stock, I could see it delivering a second consecutive year with triple-digit returns in 2024.
What does it have to do to achieve this target?
For starters, the S&P 500 needs another 20%+ return in 2024. Even more critical, the Nasdaq 100, set to deliver its best annual return since 1999, must keep increasing. Any reversal from the tech-heavy index (49.83% of the index holdings) will kiss the AI company’s hopes for a repeat performance goodbye.
So, here are three things to focus on with C3.ai as we head into a new year.
A Few More Upgrades Would Help
As I said, 14 analysts are covering AI stock right now. Just three rate it Overweight or Buy, with seven at Hold, one at Underweight, and three at an outright Sell. By comparison, 94% of the 52 analysts covering NVDA stock rate it Overweight or Buy.
That’s a massive gap in respect.
The last upgrade of C3.ai came on November 21 when Oppenheimer analyst Timothy Horan raised his rating on the stock from Perform to Outperform, the equivalent of moving from Hold to Buy.
“We think they are set to outperform as evidence accumulates that AI can lead to both major new revenue sources and productivity improvements,” Barron’s reported Horan’s November comments from a research note to clients.
Even better, Horan set a price target of $40, 32% higher than where it’s currently trading. There’s no question that the analyst likes C3.ai’s chances in 2024.
However, it could use more help, say by the three bearish analysts becoming bullish about its stock or some new analysts initiating coverage with a Buy rating and a $40+ price target.
Ultimately, it needs more than three Buy ratings to complete the job in 2024.
Forget Profits … for Now
By investing heavily in generative AI, CEO Tom Siebel he admitted in September that non-GAAP profitability is off the table for now.
“The market opportunity is immediate, and we intend to seize it. While we still expect to be cash positive in Q4 FY 24 and in FY 25, we will be investing in our Generative AI solutions and at this time do not expect to be non-GAAP profitable in Q4 FY 24,” Siebel stated in its Q1 2024 press release.
On Dec. 6, it released its Q2 2024 results. The CEO pointed out that its year-over-year revenue growth was 17%. That’s up from 11% growth in Q1 2024, 0% in Q4 2023, and -4% in Q3 2023. As expected, it had a non-GAAP operating loss of $25.0 million in the second quarter, up from $15.0 million a year earlier.
For 2024, it expects revenue of $295 million to $320 million, with a non-GAAP operating loss of $125 million at the midpoint of its guidance. With over $750 million cash on the balance sheet, it has plenty to fuel its top-line growth over the next 18-24 months.
In September, the company said it had closed 12 generative AI agreements with more than 140 qualified leads for more. In December, it closed 20 generative AI agreements in the second quarter, with 225 qualified leads, considerably more than in the previous quarter.
Similarly, C3.ai’s growth continues to be scoffed at by some on Wall Street, just as it had done with Palantir Technologies (NYSE:PLTR) until its shares took off at the end of 2022. Like C3.ai, analysts are lukewarm about Palantir.
Contrarian investors will ignore the naysayers and buy C3.ai stock for long-term gains.
On the date of publication, Will Ashworth did not have (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.
