As generative artificial intelligence hit the mainstream in the last 12 months, smaller industry staples like C3.ai (AI) were lapped by Big Tech titans like Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOGL). C3.ai stock is down more than 4% in 2024 and has taken a 25.8% haircut in March alone. The silver lining is this steep drawdown has AI testing a long-term trendline that, if past is precedent, could have bullish implications going forward.
The shares are within one standard deviation of their 320-day moving average. Per Schaeffer's Senior Quantitative Analyst Rocky White, C3.ai ran into this trendline twice in the last three years. For the purpose of this study, White defines that as the equity trading above the moving average for 80% of the time over the past two months, and closing north of the trendline in eight of the last 10 sessions. After both pullbacks, AI was higher one of month later, averaging an impressive 22.8% pop. From the stock’s current perch at $27.50, a move of similar magnitude would put AI around $33.77, nearly filling that March deficit.
AI Stock Chart with 320-day moving average
Should AI bounce back, it could prompt analysts to shift their stances, considering 11 of the 14 brokerages in coverage maintain “hold” or worse ratings. A short squeeze is in the cards too. Short interest fell 8.7% in the last two reporting periods, but still represents a whopping 29.4% of the stock's available float. It would take shorts over four trading days to cover their bets, at AI’s average pace of trading.
When speculating on the security’s next move, options look like a good way to go, per the stock's Schaeffer's Volatility Index (SVI) of 51%, which ranks in the bottom percentile of its annual range, meaning options traders are pricing in extremely low volatility expectations at the moment. A premium-selling strategy could be the move. AI sports Schaeffer's Volatility Scorecards (SVS) of 15 out of 100. In other words, the equity has consistently realized lower volatility than its options have priced in.
