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While Big Tech giants such as Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOG) (GOOGL) are trading close to their newly set record highs, some of the smaller players who are part of the artificial intelligence (AI) megatrend are trailing far behind in comparison. One such mid-cap AI stock is C3.ai (AI), which trades over 83% below all-time highs.
Valued at a market cap of $3.6 billion, shares of C3.ai went public in late 2020, and touched all-time highs of $183 soon after.
Today, the stock is trading around $30 per share, and has underperformed the broader S&P 500 Index ($SPX) on a YTD basis, despite the optimism surrounding AI companies.
Let’s see if this underperforming AI stock should be part of your watchlist in June 2024.
An Overview of C3.ai
C3.ai operates as an enterprise-focused AI software company. Its portfolio of solutions includes:
- C3 AI: An application development and runtime environment that allows clients to design, develop, and deploy AI applications
- C3 AI Ex Machina: Used for analysis-ready data
- C3 AI CRM: A customer relationship management solution
Additionally, the company offers products to optimize inventory and identify supply chain risks.
Strong Q4 Results for C3.ai
C3.ai reported revenue of $86.59 million in fiscal Q4 of 2024 (ended in April), an increase of 19.6% year over year. Further, its loss per share stood at $0.11, much lower than estimates of $0.30. Management expects Q1 sales to be $86.5 million, in line with consensus estimates, while the company raised guidance for the upcoming fiscal year to $382.5 million, indicating a year-over-year growth rate of 23.2%.
CEO Tom Siebel emphasized that Q4 was its fifth consecutive quarter of accelerating revenue growth, allowing it to report a free cash flow of $18.81 million, compared to a cash outflow of $45 million in the year-ago period. A free cash flow margin of over 20% will offer C3.ai the flexibility to reinvest in organic growth and target accretive acquisitions.
C3.ai stated that 88% of its bookings in fiscal 2024 were driven by AI application sales, and 12% of bookings were tied to its C3 AI platform. The company’s pilot count surged to 123 as it closed 191 agreements across 19 countries.
The federal defense and aerospace sector accounted for 50% of total bookings, followed by oil and gas at 15%, state and government at 11%, manufacturing at 7%, energy and utilities at 6%, and consumer packaged goods at 5%.
Analysts Weigh In on AI Stock
Out of the 14 analysts tracking AI stock, four recommend “strong buy,” six recommend “hold,” two recommend “moderate sell," and two recommend “strong sell,” for an average rating of “hold.” The consensus target price for AI stock is $29.33, which is roughly flat with the current trading price.
That said, according to Northland analyst Mike Latimore, C3.ai’s acceleration in subscription growth indicates the headwinds associated with the migration from a usage-based revenue model are abating.
After earnings, Latimore upgraded C3.ai stock from “Market Perform” to “Outperform,” and increased the 12-month target price to $35. C3.ai’s strong pilot growth and robust demand for AI should drive sales going forward, explained Latimore in a note accompanying the upgrade.
Wedbush Securities also said strong Q4 results were another step in the right direction for C3.ai. The investment firm stated, “The company continues to expect positive FCF for FY25 pointing to the company’s ability to balance aggressive investments into its growth profile while focusing on bottom-line expansion.”
Wedbush rates AI stock at “Outperform,” with a Street-high target price of $40 - suggesting the stock could rise more than 30% from here.
On the date of publication, Aditya Raghunath 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.
