C3.ai Is Catching Fire: Time to Jump on the AI Bandwagon?

As I write this late Wednesday morning, C3.ai (AI) stock is up nearly 8% on the day in heavy trading. Over the past five days, AI stock has gained more than 22%. So although it loses millions and analysts don’t seem to care for it, AI stock appears to be on a roll. 

The bandwagon for C3.ai is getting larger by the day. The question is whether investors should be jumping on or steering clear of tech icon Tom Siebel’s latest creation. 

Here are my two cents on the subject. 

There’s No Denying AI Is the Latest Shiny Object for Investors

How do we know artificial intelligence (AI) is hotter than a pistol? A quick Google search produces hundreds of answers. However, the one that caught my attention is the latest Business Trends Index from Fiverr (FVRR), the online marketplace for content creators to sell their products and services to willing buyers. 

According to the seventh annual edition of the Business Trends Index, searches on Fiverr for AI-related services jumped by more than 1,000% over the past year. 

“Companies are looking for freelance experts skilled in using specific generative AI tools. As a result, searches for platforms like ‘Jasper,’ an AI content generation platform for businesses, exceeded those of typically high-volume searches, such as ‘TikTok Video’ and ‘Custom Logo.’” 

Searches by U.S.-based companies and individuals for AI-related services increased by 1,121% over last year’s report. Demand in the Netherlands was off-the-charts, up 4,270%. Of all the major countries featured in the report, only Germany was below 1,000%, up 816%. 

Globally, companies seek AI experts to stay ahead of the pack. C3.ai has positioned itself to take advantage of the surging demand for AI. Every country currently has an imbalance between the demand for AI and the digital workers to handle this demand. 

The biggest problem for C3.ai is to ensure that it remains a viable option for enterprises wanting to incorporate AI into every aspect of their businesses. 

C3.ai’s Better Than Expected Q4 2023 Results 

The company reported its preliminary Q4 2023 results on Monday. 

They were better than expected, with revenue between $72.1 million and $72.4 million, above its previous outlook of $71 million at the midpoint of its guidance and higher than the analyst estimate of $71.1 million. 

On the bottom line, its adjusted operating loss In the quarter is expected to be $23.8 million at the midpoint of its guidance, better than its previous estimate of $26 million. Further, it expects to generate at least 18 million in positive free cash flow. However, for the entire fiscal 2023, its free cash flow loss will be nearly $190 million, or approximately two-thirds of its revenue. 

While investing in money-losing businesses is always challenging, at least C3.ai is playing in a popular sandbox that will likely get significantly larger in the coming years. 

“There is no CEO, no corporate board, where the issue of applying predictive analytics to business process is not one of top three things on their agenda,” C3.ai CEO Tom Siebel said in an interview with Barron’s. “The market has changed for enterprise AI. It’s just exploding, and we’re seeing that in our business pipeline. We’re in a pretty good position here. We have the product, the channel, and the sales organization.”

As part of its preliminary Q4 2023 report, C3.ai closed 43 deals during the quarter, including 19 pilot projects. It went further to say the demand for enterprise AI has never been higher in its 14-year history. 

The company’s switch to a consumption-based pricing model for its AI platforms from a subscription-based model has been popular with existing customers and potential future customers. As a result, its sales pipeline has increased by more than 100%.

It also said that it plans to be non-GAAP profitable by this time next year. In the meantime, it will finish fiscal 2023 with more than $800 million in cash, cash equivalents, and investments. 

Business is looking good. 

The Bottom Line

Analysts, for the most part, don’t like C3.ai. Of the 12 that cover it, according to Barchart.com data, only two analysts rate it a Strong Buy. Overall, analysts view it as a Hold (2.83 out of 5) with a mean target of $19, well below its current price of around $25.50.

However, D.A. Davidson analysts have a $30 target price and a Buy rating.  

“Enterprise interest in artificial intelligence remains elevated with C3.ai commenting on healthy growth in its pipeline. We expect an audited 10K [annual filing] will be the final boost of confidence in the stock near term,” Barron’s reported the D.A. Davidson analysts’ comments.

In addition to reporting its preliminary earnings on Monday, the company issued a press release stating that the investigation into allegations made by short sellers Spruce Point Capital Management and Kerrisdale Capital Management found no smoking gun regarding accounting irregularities. Accordingly, the board considers the situation dealt with.

While short sellers don’t tend to go away, the findings were undoubtedly another reason for AI stock to move higher this week. 

If you’re an aggressive investor, the tea leaves say AI stock might be your very own pot of gold in 3-5 years. However, if you’re averse to risk, I would only consider it within the diversified confines of an ETF that holds a position. 

 

 

 

 

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.