Why C3.ai (AI) Stock is Cleared Today
What Happened: Shares of artificial intelligence (AI) software company C3.ai (NYSE:) fell 5.4% in afternoon trading after the market took a breather without no obvious reason behind this widespread weakness. Investors probably took their profits after a good end to the year. 2023 has been a great year for the market, with the S&P 500 up almost 25%. The year began with a wave of technological advancements, propelling the technology sector to new heights. Companies pioneering artificial intelligence have enjoyed a renaissance, attracting investor attention and generating substantial gains. However, not all sectors have prospered equally. Traditional industries like consumer durable goods have faced headwinds as consumers have had to incur significant spending, prompting a wave of restructuring and strategic realignment.
More recently, the market has surged over the past couple of months. Inflation has fallen below expectations, prompting the Federal Reserve to shift from a hawkish to a dovish stance: It now plans interest rate cuts in 2024, a tailwind for stocks as it lowers the discount rate applied to future cash flows. As a reminder, the value factor of a stock is the sum of its future cash flows discounted to today. With lower interest rates, investors can charge higher valuations to their stocks. It’s no wonder many investors are optimistic about 2024. At StockStory, we remain cautious, as following the crowd can lead to negative results. In times like these, it is best to own high-quality, profitable companies that can withstand the ups and downs of the market.
The stock market overreacts to news and large price declines can present good opportunities to buy high quality stocks. Is now the time to buy C3.ai? Find out by reading the original article on StockStory.
What the market tells us: C3.ai shares are very volatile and have seen 74 moves greater than 5% over the past year. In this context, today’s development indicates that the market considers this news significant, but not as something that would fundamentally change its perception of the company. The previous big move we talked about happened 10 days ago, when the company gained 10.8% following news reflecting the continued uptrend of the broader market, which some might playfully call the Santa rally (a real observed phenomenon in which the market tends to drift upward). during the holiday season for reasons such as optimism and year-end tax considerations for funds and investors). All major indexes rose, fueled by growing optimism that the Federal Reserve would not only conclude its rate hikes, but cut them by 224. Declining inflation was the catalyst for this change in tone of the from the Fed.
At the December 2023 Fed meeting, committee members announced rate cuts of at least three-quarters of a point in 2024, roughly in line with market expectations but more dovish than previous statements Fed officials. This paved the way for a soft landing scenario, in which inflation would be brought under control without the economy suffering damage that would hurt overall consumer demand.
As a reminder, lower rates are beneficial for stock valuations, particularly for technology companies where the market must discount longer-term cash flows. When doing the math to discount these cash flows back to today, an assumed lower discount rate leads to higher present values.
C3.ai is up 160% year to date, but at $28.77 per share, it’s still trading 38% below its 52-week high of $46.37 from June 2023. Investors who purchased $1,000 worth of C3.ai stock during the IPO. as of December 2020, this would now be an investment worth $310.84.