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Artificial intelligence (AI) took center stage in 2023 as the investment sweetheart, with the big tech leviathans basking in the limelight.
All eyes have been on the “Magnificent Seven” – Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – as they dance in the glow of their massive market capitalizations on the grand stage of the broad market (SPX)(QQQ).
Yet, hidden in the wings and enjoying a spectacular resurgence in 2023 following a calamitous act in 2022 are several AI and AI-adjacent rising stars, such as C3.ai (AI).
Now, don't be misled by the meteoric 250% ascension of C3.ai's stock this year. The numbers behind the scenes haven't exactly been show-stopping.
While C3.ai had a promising opening act with a year-over-year revenue growth peaking at 42%, the company's balance sheet still stubbornly shows red, and its last quarter's revenue was more or less a carbon copy of the previous year.
In 2022, C3.ai flaunted an impressive 38% revenue jump. However, the story told a different tale in 2023, which saw a rather modest growth of 6% to $267 million.
A glance at the horizon of fiscal 2024 predicts a growth rate oscillating between 10% and 20%. The company's tapering progress was conveniently pinned on macro headwinds that allegedly led corporate giants to reassess their software expenses.
Let’s further dissect this multilayered enigma.
A chameleon of sorts, C3.ai has a history of evolving with the times. Starting as C3 Energy, it later donned the garb of C3 IoT (Internet of Things) before finally settling on the moniker of C3.ai in 2019, just as AI began to twinkle in the market's eye.
C3, despite its shiny AI cloak and a lucrative IPO back in 2020, is mostly dishing out the same machine learning algorithms it was developing pre-rebranding. Sure, these algorithms have the knack to automate and speed up tasks, but tagging them as groundbreaking AI tools is an area where the bears and bulls lock horns.
Mainly courting large-scale energy, industrial, and governmental clients, C3 rakes in over 30% of its revenue from a joint operation with energy titan Baker Hughes (BKR) — though that's due to wind down in fiscal 2025.
Meanwhile, in response to slowing growth, C3 made the significant decision last year to transition from subscription to usage-based fees. This strategy aims to attract potential customers during tough economic times. However, this change could decrease short-term revenues and make their offering less appealing, as customers may perceive this pricing model as less predictable and harder to budget for.
It's also impossible to overlook the formidable competitors breathing down C3's neck: Amazon Web Services (AWS), Microsoft's Azure, Google Cloud Platform (GCP), and other cloud infrastructure titans already offering comparable AI solutions tailored for enterprises.
Tech analysts are raising their glasses to C3, setting price targets even higher, but the consensus figure sits at $24.36. If you’re keeping score, this represents a potential plunge of nearly 40% from C3.ai's current stock price. With the stock's price-to-revenue multiple at 15 and over 4x its book value, it seems like it might have reached its peak, given the present state of the business.
Yet, the winds could change if the company outperforms in the upcoming year. They're forecasting revenue to hit up to $320 million for fiscal 2024 (wrapping up in April).
That would represent a 20% leap from the previous fiscal year, a marked improvement from last year's rather drab sub-6% growth. However, investors might have been hoping for a bigger pie, considering AI's the rising star this year.
Peering into C3.ai's future growth prospects is akin to looking through a smoky glass — the company's sudden transition to usage-based fees and the potential departure of Baker Hughes in 2025 only exacerbate this uncertainty.
Toss in the fact that C3.ai is still very much painted red with unprofitability based on generally accepted accounting principles (GAAP), and you've got a company whose financial health raises more questions than it answers.
By no means am I asserting that C3.ai's voyage is bound to hit an iceberg. Still, the numerous "maybes" clouding the company's landscape aren't very reassuring.
Unless you're an adrenaline junkie eager to strap in for this roller-coaster, adopting a "wait and watch" stance with C3.ai may be wise to see if it can genuinely metamorphose into a high-growth stock.
Midjourney prompt: "AI Darling or Delusion"