What Happened?
Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 5.7% in the morning session after the major indices tumbled (Nasdaq down 1.1%, S&P 500 down 1.0%) while yields soared, as the Bureau of Labor Statistics reported non-farm payrolls for the month of December 2024, which was stronger than expected, raising concerns the Fed might hold rates at the current levels for longer. Payrolls jumped by 256,000, far surpassing analysts' forecasts of a 155,000 gain. Meanwhile, the unemployment rate dipped slightly to 4.1%, signaling resilience in the U.S. job market. While the data can be interpreted as good news for the U.S. economy, it casts uncertainty over assets like stocks. Investors now view the robust jobs data as further justification for the Fed to maintain its current rate stance in upcoming policy meetings.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
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 36 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 22 days ago when the stock dropped 12.7% on the news that KeyBanc analyst Eric Heath downgraded the stock's rating from Hold to Sell and assigned a price target of $29. The price target implied a potential 25% downside from where shares traded before the downgrade was announced. The analyst thinks the stock's recent rally means AI's valuation presents "an unfavorable risk/reward."
C3.ai is down 8% since the beginning of the year, and at $31.89 per share, it is trading 25.7% below its 52-week high of $42.94 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 $344.79.
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