It makes sense that enterprise artificial intelligence company C3.ai (NYSE:AI) and its investors would benefit from the machine-learning boom. However, “AI fever” seems to have reached a dangerous tipping point. If your AI stock outlook is too optimistic, you might overlook the major downside risks. Plus, the stock is susceptible to a sharp pullback because there’s a crucial event coming up for C3.ai.
Time and again, I’ve encouraged C3.ai’s current and prospective investors to be patient. Remember – when others are greedy, it’s time to be cautious.
I understand that it’s difficult to apply that principle when C3.ai stock is on an upswing. However, your financial health depends on your ability to resist temptation during times of trend-driven euphoria.
AI Stock Jumps Without Any Company-Specific Catalyst
Recently, AI stock surged 5.7% higher even though C3.ai’s news page didn’t indicate that anything special was going on with the company. Incidents like this can be baffling, but a little bit of digging will reveal the reason for the share-price run-up.
Here’s what happened. Palantir Technologies (NYSE:PLTR) leaped higher by over 30% because the company reported strong fourth-quarter 2023 results. Palantir has been known as a cybersecurity business for years, but now, it seems as if the company is emphasizing its AI-focused products and features.
Furthermore, Palantir Technologies CEO Ryan Taylor declared, “I’ve never before seen the level of customer enthusiasm and demand that we are currently seeing from [AI platforms] in U.S. commercial.” So, it appears that AI stock was swept up in a wave of general AI enthusiasm, courtesy of Taylor and Palantir.
The OpenAI CEO Issues a Warning
Contrarian investors should start to hear the alarm bells ringing. C3.ai is a consistently unprofitable business. This isn’t 2021, when borrowing costs were low and unprofitable, companies could just coast on hope and hype.
Palantir Technologies had a good quarter, but this doesn’t necessarily mean C3.ai will also have a strong quarter. Overeager investors really need to watch out, as C3.ai is due to release its third-quarter fiscal 2024 results on Feb. 28.
Wall Street expects the company to report a net earnings loss of 28 cents per share. So, once again, C3.ai will almost certainly continue its track record of losing more money than it’s making.
Finally, investors should listen to the warning of Sam Altman, CEO of ChatGPT developer OpenAI. Clearly, Altman has an insider’s insight into the AI market’s past, present and potential future.
This might shock you, but Altman recently said that AI “will change the world much less than we all think and it will change jobs much less than we all think.” In addition, he cautioned that “people are begging to be disappointed, and they will be.”
AI Stock Outlook: Let the Air Come Out of the Bubble
If you’re thinking about loading up on C3.ai stock now, stop and think about Altman’s warning. Consider that perhaps the future growth expectations for C3.ai and other AI companies may have gotten out of hand. Then, adjust your AI stock outlook accordingly.
With C3.ai’s quarterly data release imminent, the stakes are high and so are the risks for investors. Therefore, I’m sticking to my suggestion of letting C3.ai stock pull back before jumping in. $25 would be a good price to buy and $20 would be even better, so pick your price and just be patient.
On the date of publication, David Moadel 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.
