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If you’ve been reading the news, you’ve most likely heard of ChatGPT. The newly released chatbot, powered by artificial intelligence, machine learning, and interactive human training, made waves for its ability to engage in conversation and its mistakes along the way. The judging panel is still out on whether or not it’s a resounding success, but one thing is clear: it has sparked a conversation about the role of artificial intelligence (AI) in the world.
AI stocks have been on the public market for several years now, as the technology has made inroads into all sorts of niches: interactive chat bots, of course, but also autonomous vehicles, robotics, warehousing… even online content writing. There is no doubt that AI is here to stay, nor any doubt that, in the long run, it will bring with it some dramatic changes.
But for now, are AI stocks really worth all the hype everyone is talking about?
Looking at TipRanks data and Street analyst comments, it would seem for now that the answer is “No.” The stock is not well liked by Wall Street stock professionals, who note that the technology is young, the success of its applications remains shaky and investments are still highly speculative.
With that in mind, let’s take a look under the hood of a couple of high-profile AI stocks, check out their analyst ratings and their latest data reads, and see if we can’t figure out where AI is going.
C3.ai, Inc. (TO THE)
We’ll start with C3ai, an enterprise AI company that integrates AI into software applications. The company offers a family of products, including its C3 AI Application Platform, an end-to-end development and deployment platform, along with a portfolio of AI SaaS apps for digital transformation. C3ai’s apps and software have found use in customer engagement, fraud detection, predictive maintenance, and supply chain optimization.
Since going public just over two years ago, C3ai has seen its share price fall dramatically, which is not unusual for companies that work with highly speculative technology. In recent days, however, the stock has rallied sharply and the price has nearly doubled since January 5. These strong earnings came after the company released a new product suite, C3 Generate AI, a natural language-based product used to locate, retrieve and present data from a full range of information systems. Additionally, C3 announced in late January that it will be integrating ChatGPT into its product line.
In its most recent financial release, for the second quarter of fiscal 2023, released in December, C3ai showed a modest year-over-year revenue increase of 7%, with the top line expanding from $58.3 million to $62.4 million. The company’s subscription revenue led the way, growing 26% year-over-year to $59.5 million. C3ai operates at a loss, but its non-GAAP net EPS loss of 11 cents was less than half the EPS loss of 23 cents recorded in the prior year quarter.
Eyeing C3ai for Deutsche Bank, 5-star analyst Brad Zelnick acknowledges the hopes of the AI sector, while strongly opposing immediate investments: “We remain concerned about a history of transition with little tangible indications to measure progress along the way.. There is no doubt that C3 offers valuable predictive analytics applications to its customers, but the market for its model-driven architecture is difficult to ascertain in a subdued macroeconomic environment and business model transition.We await further evidence. that the changes taking place at C3 will serve to accelerate adoption/monetization…”
To that end, Zelnick assigns a Sell rating to AI stock, with an $11 price target implying a one-year downside of ~47%. (To see Zelnick’s track record, click here)
That’s hardly the only bleak assessment of C3ai’s prospects. Of 6 recent analyst revisions on file, 3 are to sell and 2 to hold, versus only 1 to buy, and the stock’s average price target of $13.80 suggests we’ll see a 33% downside over the next 12 months . (See C3ai stock forecasts)
BuzzFeed, Inc. (BZFD)
The next stock we’ll look at, BuzzFeed, was founded in 2006 to track viral content and has become somewhat ubiquitous online today. In addition to tracking viral content, the company also generates and promotes content, including online quizzes, pop culture articles, and new-style content on “fluff” topics. BuzzFeed is closely aligned with the Huffington Post — Kenneth Lerer, president of BuzzFeed, was a co-founder of HuffPo — and has made forays into serious journalism.
BuzzFeed’s stock fell sharply throughout last year and into last January, but it showed a huge jump just last week, with the announcement that BuzzFeed will partner with OpenAI, the creator of ChatGPT, to develop content inspired by the artificial intelligence in the short term. In short, BuzzFeed will attempt to integrate AI into its content creation; the chatbot will become the creator of the chat. The idea is both risky and innovative, and the news sent BZFD’s shares skyrocketing.
The possible integration of AI into BuzzFeed’s content creation carries a promise of lower costs and higher margins, which can support the company’s moderate revenue growth. In its latest reported quarter – 3Q22 – BuzzFeed showed a top line of $104 million, up 15% year over year. The increase was driven by content revenue, which at $38.4 million was up 45% year over year. Ad revenue was $50.4 million, flat year-over-year. The company’s net loss increased significantly, from $3.6 million in 3Q21 to $27 million in 3Q22.
This stock caught the attention of Cowen’s 5-Star analyst John Blackledge, who noted BuzzFeed’s uncertainty regarding the monetization of its short-form video content and its vulnerability to reducing digital ad spend in the context of weak consumer spending.
Regarding the company’s recent moves to bring AI technology on board, Blackledge writes, “While we think AI could eventually help BZFD generate more content at a lower cost (and drive more engagement and advertising), the timing and the impact of their growing adoption of AI are unclear at this point.”
Overall, Blackledge is comfortable giving BZFD a Market Perform (aka Neutral) rating, with a $2 price target indicating a potential 13% decline in the coming months. (To see Blackledge’s track record, click here.)
The BuzzFeed stock analyst review summary is split evenly: 3 reviews, 1 each for Buy, Hold, Sell, adding up to a consensus rating of Hold. The average price target is $2.17 and the current trading price is $220, suggesting the stock will remain in range for the foreseeable future. (See BuzzFeed stock forecasts)
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Disclaimer: The views expressed in this article are solely those of the analysts featured. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
