00:00 Brian Sozzi
Let’s fire up my stock of the day, C3 AI. Cover your eyes on this one as this formerly AI high flyer stock is crashing today and it’s warranted. C3 AI issued terrible guidance late Friday. Has aimed to reorganize its sales force. For your notebook, you never want to see a company issue bad guidance after the market close on a Friday. Company’s also reeling as spiritual leader and CEO, Tom Siebel continues to deal with health issues which is prompted him to search for a successor. DA Davidson’s analyst, Lucky Shriner called the earnings news, quote, catastrophic. Still with me. My round table, John Campbell, Tom Essay and Brooke DiPalma. Uh John, I want to get over to you. I mean it’s, uh, you know, we’ve seen the strength continue in AI trades but then you have this company like C3 AI, the stock is absolutely crashing because of a bad pre-announcement but this morning, we got good news out of Micron, a pre-announcement to the upside. Um, what is one to believe, uh, when it comes to the AI trade here?
01:51 John Campbell
Uh I think that obviously the AI trade has been the place to be for the last few years and it’s really been those AI enablers or more pure play AI. And um when our if our in our process, we focus on high quality stocks and so we haven’t owned a company like C3 AI or or some of the other unprofitable uh tech stocks but um I think now is probably the time to pivot away from some of the pure plays and go to more of a bank shots on AI and uh names like uh they would be in the industrials that, you know, aren’t even tech stocks but are benefiting from all of the infrastructure spending. So there’s some uh companies like Powell industries or Imcore that are more focused on uh electrical equipment or even construction of data centers. So I think there’s still legs for the AI trade but um the pure plays have gotten really expensive and and pretty demanding. Um everything’s got to go right for those companies at this point.
03:23 Brian Sozzi
Listen, I’ll have more on this C3 AI selloff after opening bid on yahoo finance.com. I encourage everyone to check it out. Tom, um besides three C3 AI, uh Palantir has been on an absolute tear. I think it’s up over 150% year to date, up 2,500% since the IPO. Can you make a case for riding that momentum, even though the valuation on a Palantir, another top AI trade, is absolutely exorbitant?
04:11 Tom Essay
The short answer is I can because in stark contrast to C3 AI, Palantir posted really good earnings. I think it was either last week or the week before. Uh not only did they they beat but they also raised guidance. So I think what this is underscoring is the fact that AI, the whole AI movement, revolution, whatever we want to call it, is maturing and there are certain companies that are executing and there are certain companies that are not. And if you can execute like Palantir, then you’re going to get a really big multiple. Now from my view of Palantir is that valuation can’t even sort of be discussed because if Palantir is trading 500 times forward earnings, is it that much more egregious than when it was trading 400 times forward earnings? You know, we’ve we’ve left.
05:07 Brian Sozzi
We’ve normalized it, Tom. We’ve no we’ve normalized these valuations just for the average human out there, the average investor. Normally, I was taught, Tom, and John, I don’t know about you, you know, 15 or 16 times is good value. Yeah. Yeah, exactly. Exactly, right. So we are so far beyond anything that would be considered logical that the only reason you can buy this thing is momentum. And so given that the earnings were really good, the company is executing and if you loved it at 400 times earnings and they’re executing, I hope you love it more at 500 times. Yeah, and that’s sort of the way I view it.
06:13 Tom Essay
Yes. P
06:37 Brian Sozzi
John John, let me get back to you. You mentioned you’re on the search for high quality stocks in a market where seemingly everything is rising every single day. Define high quality for us.
06:56 John Campbell
Uh we define it in a couple of ways. We look at quality from the lens of what we call management behavior. So what are they doing in terms of capex? Uh so balance sheet structure, are they buying back stock? Uh dividend policy? What’s their coverage uh of their uh debt and and dividends? And so that’s one lens of quality. Another lens is, you know, what are the results of those capital allocation decisions? So that’s, you know, what kind of profits is are they producing? Are profit margins high and rising? Are they generating high free cash flow or high returns on investment capital? Uh so, uh you know, really just blocking and tackling of looking at the company’s results.
07:59 Brian Sozzi
Brooke, uh it is remarkable to see this crash in C3 AI. Now, I think believe the stock uh using the price today down about 67% from the 52 week high.
08:22 Brooke DiPalma
Yeah, and what we’ve seen, if you take a look at the YF interactive, we’ve seen C3 AI lead the laggards when it comes to the AI space overall. If you take a look at C3 AI, it’s down more than 50% year to date and in the last year alone, it’s down 36%. And so what we see is is this discretion. I liked what the other guest said about these companies need to do it right. You’re seeing AMD get rewarded year to date by investors really rallying off those April lows. You also see Nvidia once again getting rewarded as well. And so it’s interesting to see this dichotomy, I guess you could say, these differences between companies not necessarily putting out the the results that investors want versus uh what others are doing that are really leading to these record highs as you could see holding onto that momentum year to date, even Super Micro really gaining momentum down you down over the year, but up more than 50% year to date. Investors once they hear something that they like, they’re certainly flocking to these bigger names.
09:46 Brian Sozzi
Yeah. Uh memo to Jensen Wong and Lisa Su, uh don’t reorganize your sales team.