Stock Story -
What Happened: Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 6.4% in the morning session as major indices retreated after the Bureau of Labor released inflation data for December 2023, which came in hotter than expected at 3.2%, above the market consensus of 3.1%. Similarly, the data showed that inflation rose by 0.3% compared to the previous month instead of the anticipated 0.2%.
These differences versus expectations may seem quite small, and make no mistake, they are. However, recall that there was much enthusiasm in the markets to end 2023 based on the expectation that rate cuts in 2024 are nearly a sure thing. Today's market move is reflecting a pushback on this narrative and giving back some of the big gains in the last few months of 2023. Said differently, today's market move is seriously floating the possibility that the market has gotten ahead of itself.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
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? Find out by reading the original article on StockStory.
What is the market telling us: C3.ai's shares are very volatile and over the last year have had 75 moves greater than 5%. In context of that, today's move is indicating 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 13 days ago, when the company dropped 5.4% as the market took a breather with no obvious reason behind the broad-based weakness. Investors likely took profits following a strong finish to the year. 2023 was a splendid for the market, with the S&P 500 up nearly 25%. The year began with a surge in technological advancements, propelling the tech sector to new heights. Companies pioneering in artificial intelligence experienced a renaissance, capturing the attention of investors and driving substantial gains. Not all sectors, however, flourished equally. Traditional industries like consumer durables faced headwinds as consumers reeled in large expenditures, prompting a wave of restructuring and strategic realignment.
Inflation has come in below expectations, prompting the Federal Reserve to pivot from a hawkish to a doveish stance--it is now projecting interest rate cuts in 2024, a tailwind for stocks as it lowers the discount rate applied to future cash flows. As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
C3.ai is down 8.1% since the beginning of the year, and at $26.38 per share it is trading 43.1% below its 52-week high of $46.37 from June 2023. 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 $285.44.
