Are you considering an investment in a high-growth artificial intelligence (AI) stock? C3.ai (NYSE: AI) stock could be worth exploring, especially with its upcoming earnings report in September. The US$3 billion AI growth stock has established a recent history of exceeding expectations, with its stock price jumping double digits after the past two earnings releases. Speculation is high that the trend may continue next month.
Short interest (investors betting against the stock) sits at a substantial 27.6%, but C3.ai stock has a history of surging on positive financial news. The company is experiencing rapid expansion, potentially leading to another post-earnings spike in September.
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C3.ai stock: Growth driven by AI adoption
C3.ai is an enterprise AI vendor that recently added generative artificial intelligence to its offerings, much to growing customer attention. It’s a volatile growth stock that’s responding favourably to encouraging financial results lately.
The stock surged 19% after the May 29th report, which revealed accelerating revenue growth and narrowing non-GAAP losses. It saw a similar 24.5% jump after February’s earnings release. Higher-than-expected revenue and declining adjusted earnings losses have improved investor sentiment, particularly after short-seller attacks in 2022 and 2023.
C3.ai stock’s revenue growth is accelerating as businesses increasingly adopt artificial intelligence solutions, including generative AI, following the trend sparked by ChatGPT’s popularity in 2023. While the Federal, Defense, and Aerospace industry remains a key source of revenue (nearly half the company’s total bookings), the Manufacturing sector is catching up. These two industries, along with Agriculture, were significant contributors to recent revenue growth. The company’s revenue base is widening.
Strong revenue growth and diversification
C3.ai reported its fifth consecutive quarter of accelerating revenue growth in May, with a 20% year-over-year increase in quarterly sales – its fastest in seven quarters. Subscription revenue growth, at 41% year-over-year, was the highest seen in 24 months.
The company’s revenue is becoming increasingly stable and predictable. Subscriptions, a highly recurring revenue source, made up 92% of quarterly sales by April, up from 86% for Fiscal Year 2023. This translates to potentially more stable, recurring, and predictable income, ultimately improving earnings and cash flow quality.
Investors eagerly await C3.ai stock’s upcoming earnings report. Actual results have consistently exceeded management’s expectations in recent quarters. While management has guided for 16% to 23% year-over-year revenue growth for the July quarter, recent history suggests this could be a conservative estimate.
How to invest in C3.ai stock in Canada
C3.ai shares may do well in earnings trading strategies that capitalize on volatility to quickly reach target exit prices. However, the AI stock is a speculatively priced growth stock with high volatility tendencies, suitable for personal portfolios with significantly high risk tolerances. Although shares gained substantially following the two most recent earnings events, the stock gave up those gains in subsequent weeks.
Given the stock’s persistent volatility, Canadian investors should consider limiting their total exposure to C3.ai stock to low single-digit percentages of their portfolios. This minimizes potential damage if the stock experiences wild swings or underperforms in September.
Further, investing directly in C3.ai stock on the New York Stock Exchange introduces currency risk to a Canadian investor’s portfolio. The value of your position will fluctuate with the exchange rate between the US Dollar and the Canadian Dollar.
One consideration is to own C3.ai stock in a Canadian Exchange Traded Fund (ETF) that provides exposure to AI stocks. This move diversifies your holdings, eliminates direct currency risk, and potentially offers exposure to a wider range of promising AI growth stocks. However, as of now, there aren’t any significantly large AI-focused Canadian ETFs holding C3.ai stock.
