For the past couple of years, artificial intelligence (AI) stocks have enjoyed significant attention from investors. While major players like Nvidia (NASDAQ:NVDA) have dominated discussions, tech giants such as Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Google (NASDAQ:GOOG) have also heavily invested in AI technologies. With the AI market expected to see substantial growth in the coming decade, it’s no surprise that these companies are doubling down on their AI capabilities.
However, amidst the well-established giants, numerous smaller companies are vying for attention in the fiercely competitive AI landscape, some even incorporating “AI” into their names to signal their focus. One such contender under scrutiny is C3.ai and recent cautionary remarks from Morgan Stanley post-earnings have stirred investor concerns.
A Look into C3.ai Stock
Established in 2009 by Silicon Valley veteran Thomas Siebel, C3.ai (NYSE:AI) offers an enterprise AI platform designed to help businesses harness technologies like cloud computing, big data, and the Internet of Things (IoT) for better decision-making. Despite going public in 2020, the company’s market cap stands at a robust $3.89 billion.
Year-to-date, C3.ai stock has risen by 10.6%, outpacing the 8.7% gain of the S&P 500 Index ($SPX).
Bull Case for C3.ai
Impressive Q3 Performance: C3.ai’s latest quarterly results surpassed expectations, driving the stock up by 24.5% post-release. With total revenues reaching $78.4 million for the fiscal third quarter, marking an 18% year-over-year growth, the company demonstrated strong momentum. Particularly notable was the 23% increase in Subscription revenues, constituting about 90% of total revenues.
Despite ongoing losses – which widened in the latest quarter to $0.13 per share from $0.06 in the prior year – C3.ai’s financial management has consistently outperformed consensus estimates, indicating prudent handling of resources in the capital-intensive AI domain.
Diversified Operations: C3.ai operates across various industries, with no single sector dominating more than 29% of its bookings distribution. Partner-supported bookings soared by an impressive 337% from the previous year, further enhancing revenue stability. Noteworthy partners include major corporations like Amazon’s AWS, Google Cloud, and Microsoft, as well as significant government entities.
Expanding Generative AI Offerings: The company is strengthening its generative AI offerings, with notable success stories reported from various industries. Partnerships and pilot programs with leading firms underscore C3.ai’s commitment to innovation and scalability.
Bear Case for C3.ai
Revenue Strategy Migration Risks: C3.ai is transitioning its revenue strategy from subscription-based to consumption-based models, a process fraught with potential challenges. Negative revenue growth followed by flat revenue growth is anticipated during this transition period.
Profitability Concerns: The company’s lack of profitability remains a significant concern, especially considering competition from more established players like Palantir and Salesforce.
High Valuation: Trading at high forward price/sales and enterprise value/sales ratios compared to sector medians raises questions about C3.ai’s valuation.
Analyst Perspectives
Morgan Stanley analyst Sanjit Singh’s cautious outlook, with an “Underweight” rating and a $21 price target, highlights concerns regarding the stock’s valuation. In contrast, Wedbush analyst Dan Ives maintains an “Outperform” rating and raised his target price to $40, emphasizing the company’s promising product portfolio and growing demand for its AI platform.
The consensus among analysts leans towards a “Hold” rating, with a mean target price of $29.17. However, significant disparities exist among individual analysts, with varied ratings and price targets indicating mixed sentiments within the analyst community.
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Author Faith Yakubu 
