By George Leong, B.Comm. Published : January 11, 2022
Contrarian Investors Should Take a Look at AI Stock
The Nasdaq and S&P 500 powered upward in 2021, driven by the strength of mega-cap technology stocks.
While the S&P 600 made 71 new highs in 2021, numerous technology stocks were struggling to stay afloat. That was the situation with C3.ai Inc (NASDAQ:AI), a provider of enterprise artificial intelligence (AI) software used for digital transformation.
C3.ai stock debuted at $100.00 in December 2020. That was clearly a lofty price, given that the company had priced its initial public offering (IPO) at $42.00. Shares of C3.ai Inc subsequently surged to $176.94 in February 2021 before eroding to $27.52 on December 2.
With AI stock’s significant price erosion, contrarian traders might want to consider a position in C3.ai Inc.
The below chart shows C3.ai stock surging off its launchpad in December 2020 to its February 2021 high, prior to subsequent selling. AI stock failed to attract any meaningful buying support, which has led to its recent low. The selling was associated with the stock’s weak relative strength.
Despite the obvious bearish technical picture, investors might want to take a look at C3.ai Inc because its upside potential is massive.
Chart courtesy of StockCharts.com
C3.ai stock has a long way to go in order to reach its euphoric high, which may not be attained for a long time. But considering the degree of the selling, there are decent profits to be made on an oversold rally.
Watch for shares of C3.ai Inc to target $44.00, $55.00, and $72.00, representing more than a doubling from the current level.
Employing the use of Fibonacci levels, we find that AI stock has its sightline on the 61.8% retracement level around $86.00, followed by the 50% retracement level at $104.00.
While C3.ai stock’s technical picture indicates an attractive risk/reward opportunity, institutional investors have been active, with 323 institutions holding a 51.3% stake in the outstanding shares. (Source: “C3.ai, Inc. (AI),” Yahoo! Finance, last accessed January 7, 2022.)
AI stock could also get a lift from the short sellers betting against the company. As of December 15, 2021, 15.8 million shares of C3.ai Inc were short, accounting for 21.2% of the company’s float.
My view is that, if C3.ai stock rallies, it could trigger short covering and buying.