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Prior to early 2023, enterprise artificial intelligence () company C3.ai (NYSE:AI) was relatively unknown. Then, everybody and his uncle started talking about machine learning, and AI stock shot to the moon. Now, instead of backing up the truck and going all in, it’s time to consider scaling back on your share position in C3.ai.
I understand the temptation to follow trends. The machine-learning gold rush has generated a lot of wealth for early investors.
Today, however, the market has already factored quarters’ or even years’ worth of growth into the C3.ai share price. Ultimately, the best policy is to wait patiently for the AI hype cycle to pass.
C3.ai CEO Says You’re ‘Stupid’ If You Bet Against AI Trends
After the huge run-up in AI stock, C3.ai Chairman and CEO Tom Siebel made numerous notable appearances in the media. One recent appearance reveals a lot about Siebel’s attitude, which some folks might find off-putting.
In an interview with a Yahoo! Finance reporter, Siebel declared that anyone betting against AI trends is “really a crummy investor.” The CEO added, “[T]his is like betting against the internet in 1996. I mean, how stupid can you be?”
I’ll acknowledge that it would be risky to short sell AI stock now. However, it’s not a foregone conclusion that 2023 for machine learning is like 1996 for the internet. Given the lofty valuation multiples of AI-associated assets now, we might be in the equivalent of early 2000 rather than 1996.
Furthermore, Siebel was dismissive of a major problem: C3.ai’s chief financial officer (CFO) turnover rate. The company reportedly has had nine CFOs in 14 years.
Siebel didn’t seem to acknowledge that this is a bad look for the company. His explanation was, “it’s a different type of CFO that you need to run a five-person company than you need to run a thousand-purpose global company.”
AI Stock vs. C3.ai’s Fundamentals
Even if we’re willing to over look Siebel’s dismissive attitude, there are other issues with C3.ai. AI stock rallied from $11 to $40 this year, pricing in vast future growth expectations that C3.ai now has to live up to.
Bear in mind, C3.ai has never posted a profitable quarter as a publicly listed company. Moreover, C3.ai incurred a GAAP-measured net loss of $2.45 per share during fiscal 2023.
For the fiscal year ending in April 2024, C3.ai expects to generate revenue of $295 million to $320 million. That’s below Wall Street’s call for $321 million in revenue. Also, C3.ai guided for a full-year non-GAAP loss from operations of $50 million to $75 million.
Finally, it’s worth noting that C3.ai only expects its sales to increase by 11% to 20% for the full fiscal year. Again, I would emphasize that AI stock has already priced in a much faster growth rate for C3.ai.
Take Profits in AI Stock Before It’s Too Late
C3.ai’s chief executive is either refreshingly blunt or too dismissive of the company’s issues — I’ll leave it up to you to decide. For cautious investors, however, the C3.ai share price may appear too inflated now.
It’s fine if you want to invest in C3.ai and participate in the machine-learning gold rush. Just consider C3.ai’s financial stats, which aren’t perfect.
The strategy that I would recommend, then, is to wait for AI stock to pull back at least 20% before considering a share position. And if you’re already invested, this would be a great time to take partial or full profit.
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.