The surge in artificial intelligence (AI) stocks throughout 2023, driven by innovations like ChatGPT and other AI platforms, has fueled robust investor confidence. Projections from Precedence Research indicate the AI market could exceed $2.57 trillion by 2032, boasting an impressive annual growth rate of nearly 20% over the next nine years.
Capitalizing on the bullish sentiment surrounding AI stocks, C3.ai (NYSE:AI) has experienced a remarkable 163% surge in 2023, pushing its market capitalization to $3.42 billion. The pressing question now is whether this tech stock, riding high on the AI wave, remains a wise investment at current valuations.
Is C3.Ai a Smart Investment Choice Today?
C3.ai stands out as an enterprise-focused AI application software company, dedicated to catalyzing digital transformations for businesses through its AI expertise. Its comprehensive product portfolio comprises C3 AI, an end-to-end platform for developing, deploying, and operating enterprise AI applications; C3 AI Applications, a suite of industry-specific SaaS applications for global digital transformations; and C3 Generative AI, a collection of generative AI offerings.
While the company has exhibited impressive sales growth, increasing from $156.6 million in fiscal 2020 to $266.8 million in fiscal 2023, it continues to grapple with profitability. Reporting an operating loss of $290 million in fiscal 2023 aligns C3.ai with the common trend among high-growth tech companies.
C3.ai attributes its success to the adoption of ChatGPT and generative AI in late 2022, accelerating AI technology integration into business processes. CEO Thomas Siebel emphasizes the colossal market impact of Enterprise AI, highlighting the enthusiastic market response to their Generative AI solution.
The company currently offers over 40 turnkey AI applications catering to various needs such as predictive supply chain optimization, fraud detection, contested logistics, and more. Additionally, it aims to revolutionize enterprise functions by utilizing large language models (LLMs) to create a unified enterprise search model, potentially replacing applications like customer relationship management and enterprise resource planning.
Performance Check: C3.Ai’s Fiscal Q1 2024 Overview
In fiscal Q1 of 2024 (ending July), C3.ai reported revenue of $72.4 million, aligning with the higher end of its guidance. Notably, subscription sales accounted for 85% of total sales, totaling $61.4 million. The company maintained an adjusted gross margin of 69% and boasted $334.6 million in remaining performance obligations, providing shareholders with growth visibility.
Despite remaining unprofitable, C3.ai reported an adjusted loss per share of $0.09 in Q2, narrower than anticipated. Operating cash flow was $3.9 million, with a free cash outflow of $8.9 million. Ending Q1 with a cash balance of $809.6 million, the company demonstrates sufficient liquidity to support its cash burn rates in the short term, with expectations of improving profit margins in the next two years.
C3.ai anticipates consistent positive cash flows in fiscal 2025, even with substantial investments in marketing, lead generation, and branding over the next 12 months.
AI Stock’s Target Price and Analyst Recommendations
Among the 14 analysts covering C3.ai stock, three recommend a “strong buy,” seven suggest “hold,” two recommend a “moderate sell,” and two advise a “strong sell.” The average target price for AI is $27.25, indicating an expected downside of approximately 7% over the next 12 months.
Analysts foresee C3.ai increasing revenue by 15.4% to $308 million in fiscal 2024 and projecting a 20% growth to $369 million in fiscal 2025. With an elevated 10x forward sales price, AI stock trades at a premium, considering its current negative profit margins.
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