What Happened?
Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 9.1% in the morning session after JP Morgan analyst Pinjalim Bora downgraded the stock's rating from Neutral to Underweight and assigned a $28 price target, citing a stretched valuation. The price target implied a potential 27% downside from where shares traded when the downgrade was announced, The analyst added, "Given the already rich valuation, which is likely already pricing in a much better growth-plus-profile, which we find difficult to underwrite currently, we expect shares to underperform our coverage for 2025.".
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy C3.ai? Access our full analysis report here, it’s free.
What The Market Is Telling Us
C3.ai’s shares are extremely volatile and have had 34 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 7 days ago when the stock gained 6.1% as market optimism around innovators in the software as a service (SaaS) space continued to improve following strong earnings from Salesforce. The enterprise software giant showcased clear progress in capturing demand for AI solutions, signing 200 deals within a week of launching Agentforce, its new AI platform for enterprise customers. In addition, Salesforce reported thousands more deals in the pipeline, hinting at robust future growth. Reviewing some of the numbers, Salesforce reported sales and adjusted operating income ahead of Wall Street's expectations.
On the other hand, EPS and some top-line growth indicators, including billings and remaining performance obligations (RPO), fell slightly below consensus estimates, as products like Tableau, MuleSoft, and Slack revealed some weaknesses.
Despite the mixed top-line result, CRM recorded double-digit growth in the Sales and Service Cloud segments, which is encouraging. Since the onset of the AI boom, Wall Street has been craving hard data to justify the lofty projections surrounding the industry's potential. The numbers are finally trickling in, and the data suggest the AI market's trajectory might exceed initial expectations, heralding the shift from speculative hype to tangible value creation.
C3.ai is up 36.3% since the beginning of the year, and at $39.18 per share, it is trading close to its 52-week high of $41.68 from December 2024. Investors who bought $1,000 worth of C3.ai’s shares at the IPO in December 2020 would now be looking at an investment worth $423.61.
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