What happened
Shares of C3.ai (AI 14.65%) were moving higher on Tuesday even though there was no company-specific news on the AI-for-the-enterprise platform.
Instead, the stock seemed to gain after IT heavyweight Oracle (ORCL 0.21%) touted a spike in demand for its cloud services due to expanding artificial intelligence needs.
As a result, AI stocks jumped on the news, with C3.ai finishing the day up 14.7%. Oracle, ironically, jumped to start the day and was up 7% this morning, but finished up just 0.2%.
So what
All year, C3.ai stock has moved on news about the broader AI sector, so it’s not surprising to see it gaining today as investors believe good news for AI is good news for C3.ai.
In its earnings report last night, Oracle forecast strong growth for its cloud-computing business this year after sales jumped 54% in the fiscal fourth quarter. Management said that the boom in generative AI is helping to drive growth in the cloud business.
The news from Oracle is the latest data point to show that the AI boom isn’t a mirage, as mentions of generative AI technologies like ChatGPT have skyrocketed on earnings calls and Nvidia (NVDA 3.90%) also gave blowout guidance for its second quarter due to surging demand for AI chips.
Now what
C3.ai is associated with artificial intelligence, but the company, which makes AI-based applications like demand forecasting tools, has yet to see a meaningful boost from the surge in interest in the technology.
Revenue growth in its most recent quarter was flat, and the company guided for growth of just around 15% for the current fiscal year, which is underwhelming for a software company — especially one that specializes in the buzziest corner of the tech sector.
CEO Thomas Siebel has said the company is seeing strong interest from customers and said that it would be profitable on an adjusted basis by the end of fiscal 2024.
After today’s gains, C3.ai’s valuation is looking stretched at a price-to-sales ratio of 15. With only modest growth and sizable losses at the company, the stock’s gains are being fueled almost entirely by hype.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
