AI Boosted the Surge of These 3 Stocks. Can We Expect Further Growth?

 As we approach the midpoint of 2023, it is evident that this year will be eternally recognized as the turning point when artificial intelligence (AI) left an indelible imprint on the stock market. The advent of innovative generative AI technologies, like ChatGPT, sparked public fascination in the latter part of the previous year. However, it was not until this spring, when news broke that Microsoft had injected more than $10 billion into OpenAI, the parent company of the chatbot, that the stock market truly took notice.

During the last quarter, the stocks of these three AI-focused enterprises have experienced remarkable surges ranging from 39% to 66%. However, what lies ahead for these AI stocks? Before considering any investments in these companies, it is crucial to familiarize yourself with the following information.

1. C3.ai

C3.ai (NYSE: AI) became caught up in the AI stock frenzy, evident from its ticker symbol "AI." The company, specializing in enterprise AI software, witnessed a significant 66% surge in its shares over the past three months.

However, it might not be wise to anticipate a repeat performance from this stock. Despite a growing interest in AI applications for business processes, C3.ai's management has observed that enterprise customers are turning to its competitors for solutions. In the fiscal fourth quarter ending on April 30, the company reported a meager year-over-year increase of just $0.1 million in sales, totaling $72.4 million.

The stagnant revenue growth poses a prominent warning sign for this growth stock, especially considering the increasing losses. C3.ai's annual net loss expanded by 40% to a staggering $269 million in fiscal 2023 compared to the previous year. It would be prudent to keep a close watch on this stock until its financial performance shows positive movement.

   2.  Shopify

Shopify (NYSE: SHOP) is a leading player in the e-commerce industry, renowned for its software tools that assist merchants in managing and expanding their businesses. In April, the company unveiled Shopify Magic, emphasizing its capability to generate AI-powered product descriptions.

Although an AI tool generating product descriptions may not initially seem significant, Shopify Magic can have a substantial impact for merchants. Given the millions of products available on the platform without detailed descriptions, this tool becomes instrumental in enhancing product discoverability. Paid subscribers can utilize Shopify Magic free of charge, further enhancing the stickiness of the subscription service.

Shopify's subscription services were already experiencing increasing popularity, with an 11% year-over-year rise in first-quarter subscription solution revenue.

Before rushing to invest heavily in Shopify shares, it's important to note that the market already has very high expectations for the e-commerce software provider. Currently trading at 197 times forward-looking earnings estimates, it may be prudent to wait for a more attractive entry point.

 3. Bill Holdings

Bill Holdings (NYSE: BILL), commonly known as Bill.com, operates an AI-driven bill-paying platform for small and mid-size businesses (SMBs). The company's software, utilized by millions of partners, offers more than just invoice scanning—it enables SMBs to automate their cash flow management.

Bill.com is successfully attracting and retaining new customers at a healthy pace. By the end of March, it served 455,300 businesses, marking an 18% increase compared to the previous year.

In addition to customer growth, Bill.com is also deepening relationships and increasing spending among its current customer base. Fiscal 2023 revenue is expected to surge by 62% year over year, reaching $1.04 billion by the end of June.

Although Bill.com is currently operating at a loss, unlike C3.ai, its losses are narrowing. In the fiscal third quarter ending on March 31, the net loss decreased to $31 million. The company anticipates reporting approximately $172 million in adjusted earnings for fiscal 2023.

While Bill.com's business is experiencing rapid growth, much of the anticipated future growth is already priced into the stock. It is currently trading at around 73 times forward-looking earnings estimates. Investors purchasing the stock at recent prices could face significant losses if the company's remarkable growth rate slows down in the coming years. If considering this stock, it is advisable to ensure a diversified portfolio is in place.

SPONSORED:

10 stocks we prefer over C3.ai

When our analyst team provides a stock tip, it's worth paying attention. After all, their newsletter, Motley Fool Stock Advisor, has consistently outperformed the market for over a decade.*

Interestingly, C3.ai didn't make the list of the ten best stocks they believe investors should buy right now. They have identified these ten stocks as even better opportunities.

Discover the 10 stocks

*Stock Advisor returns as of June 12, 2023

Cory Renauer holds positions in Shopify. The Motley Fool holds positions in and recommends Bill, Microsoft, and Shopify. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.