Artificial intelligence may well be the next big technological revolution after the internet. But investors looking to participate in this growth story after the AI rally have their work cut out trying to identify whether C3.ai (AI) stock is a potential leader. That begs the question, is AI stock a buy now?

Shares of AI stock soared after the company posted its Q3 results late Wednesday.

For the current quarter, the company expects revenue of $84 million at the midpoint, beating views of $83.9 million.

The stock gained 157% in 2023, far outpacing the S&P 500’s 24% rise. But in January, AI dropped 14%. In February, the stock is rocketing nearly 50% higher.

Shares jumped 24% Thursday morning and have broken out from a buy point of 33.91 in heavy trading.

In December, C3.ai stock fell but found support at the 50-day line after the company reported fiscal second-quarter results.ost 13 cents per share but that was better than the per share loss of 28 cents that  analysts had expected. Revenue rose 18% to $78.4 million above the midpoint guidance of $76 million.

Sales grew 17% to $73.2 million, though its net loss of 13 cents a share was steeper than an 11-cent deficit in the prior-year quarter. Sales came in at the lower end of the company’s forecast of $72 million to $76.5 million.

Still, Chief Executive Thomas M. Siebel said in the company’s earnings release: “In the trailing four quarters, we have seen top line year-over-year revenue growth increase from -4% in Q3 FY23, to 0% in Q4 FY23, to 11% in Q1 FY24, to 17% in Q2 FY24.”

As for the path to profitability, however, C3.ai has backed off its goal of venturing into the black by April 2024. When the enterprise software company reported first-quarter results in early September, it said profits would have to wait due to plans for more investments in generative artificial intelligence.

At the time, JPMorgan analyst Pinjalim Bora — who has a neutral rating on the stock — did not find “top-line metrics materially inflecting higher to justify the increased investment posture.”

Weakening Relative Strength Rating

Despite a big February, C3.ai stock has a Relative Strength Rating of 44. That shows the stock has outperformed just 44% of all stocks in the IBD database over the past 12 months. That is down from 93 just three months ago. IBD recommends a RS Rating of 80 or above.

Further,  the stock has had periods of volatility.

In September, the S&P 500 fell 4.9% while AI stock fell 18%. That followed C3.ai’s steep decline of 26% in August, when the S&P 500 lost a little less than 2%. And in October, C3.ai fell 4.4%, whereas the S&P 500 lost 2.2%. Conversely, AI stock rose 20% in November vs. the index’s 9% gain.

Take Nov. 20 as another example of the drastic swings in C3.ai shares. AI stock traded more than 5% higher that day, then gave up all its gains when Sam Altman was ousted as chief executive from another artificial intelligence specialist, OpenAI. Altman quickly returned to OpenAI, but the news apparently triggered speculative trading as the market continues to search for leaders in the space.

But industry trends have worked in its favor as well. AI stock skyrocketed in February when users successfully tapped OpenAI’s ChatGPT artificial intelligence app to generate answers, texts, emails and even books.

The ChatGPT app reached 100 million monthly active users in two months, beating popular apps like TikTok and Instagram. OpenAI’s partnership with Microsoft ChatGPT uses natural language to help users write emails, develop code and find answers to daily questions.

There are other considerations. In December 2022, C3.ai changed its pricing model from subscription to consumption-based pricing.

The move brought the company in line with industry standards for software-as-a-service providers. The practice is common across Amazon.com‘s (AMZN) Amazon Web Services, Alphabet‘s (GOOGL) Google Cloud and Microsoft‘s (MSFT) Azure, as well as smaller players.

Consumption pricing works like a utility bill. That is, the higher the consumption, the pricier the service. Since AI customers will benefit from having access to an AI enterprise platform with unlimited use and developer licenses, the switch to consumption pricing could drive revenue growth, but not immediately.

C3.ai CEO Siebel has indicated the consumption-pricing model will also lower barriers to entry because companies do not have to be tied to long contracts.

Is C3.ai Stock A Buy Now?

Redwood City, Calif.-based C3.ai makes software applications equipped with artificial intelligence that can be configured for different purposes.

The software can make networks more reliable by detecting fraud, balance inventory and demand, solve supply-chain issues and increase energy efficiency. It can also help defend against money laundering.

The enterprise software stock popped on its first day of trading after its initial public offering on Dec. 9, 2020. Shares leapt from an IPO price of 42 to finish at 92.49 that day.

C3.ai stock has some work to do to improve its Composite Rating, which stands at 43. The EPS Rating lags further at 22.

A closer look at the Relative Strength Rating on IBD MarketSmith also shows considerable deterioration from where it stood six months ago, when the stock scored a near ideal 96. Further, the 50-day moving average is below the 200-day line, which is a bearish sign.

Because C3.ai stock is past a buy zone, it is not a buy now. Its less-than-ideal IBD ratings are also yellow flags.