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What Happened:Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI)
fell 5.11% in the morning session after the yield on the benchmark 10-year Treasury bond topped 5% for the first time in over 15 years. Even with relatively decent inflation readings as of late, this could mean higher rates for longer, which would make it more costly for consumers to take out mortgages and hold credit card debt while making it more expensive for businesses to take out bank loans to fund investments and projects. As a reminder, higher rates hurt equity valuations because a company’s stock price is essentially the present value of its future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher the discount rate. Additionally, these dynamics are more detrimental for growth stocks (like tech names) as more of the company’s value is prescribed to its long-term potential.
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 74 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 biggest move we wrote about over the last year was 7 months ago, when the company dropped 14.4% on the news that short seller, Sahm Adrangi of Kerrisdale Capital, sent a letter to Deloitte & Touche, conveying worries about alleged accounting problems at the firm.
C3.ai is up 122% since the beginning of the year, but at $24.59 per share it is still trading 47% 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 $265.87.
