What Happened?

Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 12.7% in the morning session after 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.".

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 35 moves greater than 5% over the last year. But moves this big are rare even for C3.ai and indicate this news significantly impacted the market’s perception of the business. 

The previous big move we wrote about was 3 days ago when the stock gained 7.1% as stocks soared, led by the Nasdaq, which climbed 1.2%, while the S&P 500 also increased by 0.5% amid continued positive momentum. Investors braced for the outcome of the Fed's policy meeting later in the week, with overall sentiment indicating that markets anticipate no major surprises. 

The consensus was for the Fed to cut rates by 0.25% during its final committee meeting of the year. Recent economic data, including the November 2024 CPI report, continue to support the soft landing narrative—indicating that the Fed can control inflation without harming the economy.

C3.ai is up 22% since the beginning of the year, but at $35.08 per share, it is still trading 18.3% 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 $379.15.

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