C3.ai (AI) Stock Forecast: As artificial intelligence gains spotlight, this pure play will explode in 2023

C3.ai stock lost 14% on Thursday.
C3.ai still remains a major focus of AI investors.
ChatGPT has brought renewed attention to artificial intelligence.
C3.ai stock remains up more than 100% YTD.

Clay Webster FXStreet

C3.ai (AI) stock is giving up more ground in Friday's premarket, but do not blink too long. C3.ai is one of few pure plays among publically-owned artificial intelligence stocks and will be back in the spotlight shortly. The stock sold off more than 14% on Thursday as the broader market turned south, and these volatile gyrations should be expected. However, few other stock provide the enterprise focus of A3.ai, and its more than 100% gain year to date was no passing fad.

C3.ai stock news: Right industry, right time

C3.ai is simply the right stock for this environment. Artificial intelligence has been talked about for decades, but now it has become clear that nearly every megacap in Silicon Valley and around the world is putting its wallet where its mouth is. Ever since OpenAI's ChatGPT entered the scene a little over two months ago, it has appeared that artificial intelligence will be the hot sector for 2023. While storm clouds still abound regarding the macro picture, artificial intelligence firms offer belief in a future with incredible market expansion and upside.

Microsoft's (MSFT) $10 billion investment in ChatGPT creator OpenAI values that firm at $29 billion. It probably should have a decently high valuation, but $29 billion? That is how significant Microsoft CEO Satya Nadella think's OpenAI's technology is. Microsoft's announcement midweek that it will be integrating OpenAI tech with its own Bing search platform was enough to cause Google parent Alphabet (GOOGL) to lose more than 13% of its market cap in just two sessions. Of course, it was greatly affected when Alphabet's own unveiling of its large language model Bard on Wednesday featured technical difficulties. No one is certain if Microsoft can use OpenAI's tech to cut deeply into Google's 90% hold on the internet search industry, but the competition is definitely on.

China's Baidu (BIDU) also got in on the action this week by unveiling its timeline for introducing its own ChatGPT-style technology. Called Wenxin Yiyan in Mandarin and ERNIE Bot in English, the artificial intelligence bot will not be available until March for the general public, but the announcement alone sent Baidu stock up 15% on Tuesday.

With only a $2.5 billion market cap after Thursday's slide, just 8% of OpenAI's acknowledged private valuation, C3.ai looks cheap. Moreover, C3.ai offers a suite of artifical intelligence platforms geared specifically for various industries. These include public sector, military, oil & gas and financial services platform offerings, and the company already boasts a number of high-profile customers. These include Baker Hughes, Shell, the US Air Force and Koch Industries.

Additionally, C3.ai just introduced the C3 Generative AI Product Suite that can incorporate and integrate other artificial intelligence bundles like ChatGPT for clients. C3.ai has been doing the hardword of growing its client base. In its most recent 12-month earnings reports, management grew revenue by 38% YoY. Wall Street consensus sees a lower 21% growth in the 2024 fiscal year, which begins in May 2023, but they also see losses being cut in half.

Other competitors like BigBear.ai (BBAI) and SoundHound AI (SOUN) exist but are at much earlier stages of their commercial journeys. With so much interest in the artificial intelligence sector going forward, it would be unsurprising if a larger tech company decided to scoop it up. Either way, this stock is not staying at a $2.5 billion market cap. Just last week the DA Davidson firm slapped C3.ai with a $30 price target and a Buy rating. That is rather low, but it is a start.

C3.ai stock forecast

After this week's rally, which saw AI stock shoot up to $30.92 before trading lower in a volatile fashion, expect C3.ai stock to continue lower. Consolidation is the short-term call here, and $17.50 looks like a great entry point. The $17.50 to $18 range worked well as support back in the second half of 2022 and then again in late January. This area is also where the 21-day moving average lies.

The macro picture has begun turning over in February with more traders understanding that high interest rates are likely to be in place all year. That has caused a general sell-off in growth stocks like A3.ai. Sentiment changes quickly though, and when it does AI stock will once again tear ahead of the competition. Expect A3.ai stock to test November 2021 resistance at $50 sometime this year. As DA Davidson wrote in their coverage, A3.ai stock is truly a "scarce asset".

AI daily chart

Author

Clay Webster

FXStreet

Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.

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