ACTV - 'AI.com' Is The New Market Magic Formula
2023-05-31 14:26:00 ET
Summary
- The top 10 stocks in the S&P 500 that comprise about 90% of the gains of the index this year are basically the leaders of AI, in various degrees.
- From Energy to Internet of Things to AI, it sure looks like C3.ai's CEO is following the pattern of making name changes as in the dot.com days, where picking the right name meant a higher stock price.
- In all likelihood, the U.S. Treasury was more likely to recommend the President furlough workers and partially shut down the government before skipping any Treasury bond payments to avoid a default, but I don’t think we will get to that point.
In the dot.com bubble, any IPO with a “.com” in the name went up significantly more than companies that chose not to include that suffix. It got so bad that some older companies that had little to do with the Internet chose to add a ‘.com’ to their name so the stock would go up. Some left the NYSE for the Nasdaq at the time, as a four-letter ticker symbol meant a higher stock price, even without the .com in the name.
Amazon ( AMZN ), to this day, has kept the ‘.com’ in its name, but 25 years ago Amazon had an opaque and hard-to-understand business model that for many years did not produce earnings, hence they needed a hook in their name. Few investors realized that Jeff Bezos was plowing the bulk of cash flows right back into the business in order to grow it. Amazon is the ultimate ‘dot-com survivor,’ but many others failed miserably as they did not have workable business models that could ever produce cash flows to survive long term.
“Pets.com” is often given as an example of a flawed business model, but there were hundreds of others.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The AI craze has not reached the Pets.com stage yet. This is not yet an Internet-type bubble, but the top 10 stocks in the S&P 500 that comprise about 90% of the gains of the index this year are basically the leaders of AI, in various degrees. The whole FAANG complex, if you let N stand for NVIDIA ( NVDA ) and not Netflix ( NFLX ), are AI stocks, throwing in Microsoft ( MSFT ) to boot. To understand what I fear will happen, you need look no further than C3.ai ( AI ). Here is an excerpt from “Thinking of Buying C3.ai Stock? 2 Things You Absolutely Cannot Ignore,” published by The Motley Fool on April 23, 2023:
“The company was founded as C3 in 2009 and renamed itself as C3 Energy in 2012 around the time that oil prices and oil production was surging. C3 Energy focused on providing data analytics for grid operators and public utilities for much of its early history. But then oil prices plunged in 2015. In 2016, the company renamed itself as C3 IoT, around the time the Internet of Things was becoming a buzzword. At the time, the company said, ‘The name change reflects an evolution of the company, the broadening of its customer base, and a significant expansion of its addressable market.’
“Of course, the name C3 IOT didn’t stick either, and in 2019, the company renamed itself again as C3.ai, seemingly to capture the buzz around artificial intelligence.”
From Energy to Internet of Things to AI, it sure looks like the CEO is following the pattern of making name changes as in the dot.com days, where picking the right name meant a higher stock price.
He should know. The CEO is Tom Siebel who was the head of Siebel Systems at the time and got a pretty nice boost in the Internet bubble before being acquired by Oracle ( ORCL ) in 2006.
Beware that Giant Sucking Sound
As of this writing, the U.S. debt ceiling deal is done, and they are finalizing the details. The stock market did not sell off before the deal was done, like it did in 2011, but my fear is that the stock market will sell off after the deal, as the Treasury will have to issue massive amounts of bonds past the new drop-dead default date of June 5 in order to replenish its really low cash balance.
US Treasury Cash and Projections
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In all likelihood, the U.S. Treasury was more likely to recommend the President furlough workers and partially shut down the government before skipping any Treasury bond payments to avoid a default, but I don’t think we will get to that point. The point we are sure to get to is the issuance of anywhere between $500 billion and $1 trillion in the next three months, which will suck a lot of cash out of the financial system. This surely could cause a boost in Treasury yields and put pressure on stock prices. It is great we didn’t get a big sell-off before the debt ceiling deal, but it looks like we can get one after the deal is done.
Navellier & Associates owns Nvidia Corp. ((NVDA)), Amazon.com ((AMZN)), and Microsoft ((MSFT)) in managed accounts. We do not own Netflix ((NFLX)), or Oracle ((ORCL)). Ivan Martchev does not own Nvidia Corp. ((NVDA)), Amazon.com ((AMZN)), Microsoft ((MSFT)), Netflix ((NFLX)), or Oracle ((ORCL)) personally .
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.
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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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'AI.com' Is The New Market Magic Formula