Artificial Intelligence

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>>> Elon Musk Founds New Company To Challenge GOOGL, Microsoft's ChatGPT; Is AI Stock A Buy?


Investor's Business Daily

by VIDYA RAMAKRISHNAN

04/17/2023


https://www.investors.com/research/ai-stock-teslas-musk-starts-ai-company-with-100-mil-private-stock-sale-is-ai-stock-a-buy/?src=A00220


Tesla (TSLA) chief Elon Musk has started an AI company. On Friday, Musk incorporated the new company, X.AI in Nevada. Musk is the sole director of the company and plans to make a private sale of 100 million shares of the new startup.

Earlier, in March, Musk and others asked for a 6-month pause in AI systems training that involved technologies more advanced than GPT- 4.

So where does that leave C3.ai (AI)? The stock rose nearly 5% on Monday as the AI race takes a new turn. Musk's company will count Google parent Alphabet (GOOGL) and privately-held OpenAI among its rivals, as well as C3.ai.

In 2018, Musk is said to have made a bid for OpenAI, which he helped found in 2015. But the Tesla head stepped away from OpenAI after his offer was rejected. Musk left on grounds of conflict of interest as Tesla was experimenting with its own AI-powered autonomous driving software.

OpenAI also faced astronomical costs associated with training AI systems at the time. In 2019, the ChatGPT maker transformed from "non-profit" to "for-profit", attracting the likes of Microsoft (MSFT), which invested heavily in its ChatGPT.

By March this year, OpenAI hit a valuation of $30 billion, according to sources. Musk observed in a tweet that "a non-profit somehow became a $30B market cap for-profit."

But the Tesla chief has been quick to catch up with his new startup.

AI Stock Rises On New Entrant In AI Space

AI stock has had a tumultuous April so far. Shares dived after short seller Kerrisdale Capital raised questions about AI stock's unbilled receivables and margins from client Baker Hughes. But AI rose after the company responded to the allegation.

The stock remains below the 50-day moving average but is on watch as it rises from recent lows on news of Musk's venture.

Massive Artificial Intelligence Growth

C3.ai CEO Tom Siebel sees AI applications hitting $600 billion as everyone will eventually use enterprise AI.

That is far less than Cathie Wood's prediction. In Ark Investment Management's "Big Ideas 2023" report, Wood sees AI adding $200 trillion to the economy by 2030.

Generative AI will increase efficiency for professionals and AI stock has first-mover advantage, touting partnerships with Google parent Alphabet (GOOGL), Amazon (AMZN), Microsoft (MSFT), Accenture (ACN), Baker Hughes (BKR) and others.

AI Stock Earnings: Still In The Red

AI stock reported sales of $66.7 million in the last quarter, down 4% year over year from $69.8 million. However, it still beat guidance of $63-$65 million. AI posted a net loss per share of 6 cents, slightly better than the 7 cents per share loss last year.

CEO Thomas Siebel stated that "overall business sentiment appears to be improving" compared with mid-2022 and he sees the company becoming profitable in fiscal 2024.

The generative AI stock disclosed $789.8 million in cash to carry it through "equity market turbulence". This should help "invest in growth through enterprise AI innovation and sales expansion."

Stock Surges On ChatGPT Success

The stock skyrocketed in February when users successfully tapped OpenAI's ChatGPT artificial intelligence app to generate answers, texts, emails and even books. AI stock stands to benefit from applications like ChatGPT.

C3.ai provides enterprise AI, which comprises applications for businesses but not consumers. But the company stands to benefit from consumer apps like ChatGPT because the code can be integrated into the C3.ai platform.

The ChatGPT app reached 100 million monthly active users in two months, beating popular apps like TikTok and Instagram. OpenAI's partnership with Microsoft (MSFT) ChatGPT uses natural language to helps users write emails, develop codes and finds answers for daily questions.

The Redwood City, Calif. based company makes AI-enabled software applications that can be configured for different purposes. The software can make networks more reliable, detecting fraud, balancing inventory and demand, solving supply chain issues and increasing energy efficiency. It can also help with anti-money laundering and customer interfacing.

Enterprise CRM systems that use automation to reduce costs and errors benefit from C3.ai products.

AI Stock IPO

AI stock popped on the first day of public listing in December 2020, opening at $42 per share.

The stock rose from 11.19 at the end of 2022 to 30.92 earlier this month, surging over 150% in less than two months. The Composite Rating of 71 falls below the desirable level of 90. The low 44 EPS Rating clearly weighs on the Composite Rating. However, the 98 Relative Strength Rating speaks for itself, highlighting outperformance compared with other stocks in the IBD database.

It has a mediocre "C-" Accumulation/Distribution Rating and mutual funds own only 34% of shares, according to IBD MarketSmith.

According to the CAN SLIM investment strategy, stocks with strong records of sales and earnings growth that offer clear buy points from bases are sound picks. AI stock has broken out of a base on the news. Its earnings remain on watch.

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