The first thing that pops up when you search for “AI stock” is this company called C3.ai. They got that ticker symbol AI, which is pretty fitting. So when everyone started going crazy over artificial intelligence investments, a lot of folks jumped on the C3.ai bandwagon. At its peak, this stock had skyrocketed more than 300% this year, reaching over $46 per share. But now, it’s sitting around $25, which is a major drop from its glory days.
Now, the question is, is this drop a golden opportunity to buy, or is there something fishy going on that caused this pullback?
Let’s talk about what C3.ai actually does. They provide AI solutions for all sorts of industries. Whether you’re in supply chain management, energy efficiency, or assessing creditworthiness, these guys got the products to meet your needs. And if you’ve got deep pockets, C3.ai will even whip up custom solutions just for you. They recently scored a massive $500 million contract with the U.S. Missile Defense Agency. Not too shabby.
C3.ai is also big on generative AI, which is the stuff behind cool programs like ChatGPT. They see it as a catalyst for future growth. That’s why they ditched their profitability forecast for fiscal 2024. They’re sacrificing short-term moolah to snatch up long-term market share. And that’s a move that should make the long-term investors out there pretty damn happy.
However, there’s always a limit to how unprofitable a company can be before it starts raising eyebrows. And C3.ai might be pushing that limit a bit. In their fiscal 2024 Q1, they brought in $72 million in revenue, but their expenses totaled a whopping $146 million. That’s right, they spent more than twice what they made. Yikes.
Now, they do have a way to combat this. They use stock-based compensation to cover their expenses. Basically, they’re handing out company shares like candy to make ends meet. But this ain’t great news for shareholders, ’cause it waters down the value of their existing shares.
In fiscal Q1, C3.ai dished out around $51 million in stock-based compensation. And they burned through about $95 million in cash. After crunching all the numbers, they ended up losing $11 million on a non-GAAP basis. Luckily, they’ve got a nice cash cushion of over $750 million, so they can keep on losing money for quite a while.
But here’s the catch: all this dilution from stock-based compensation means that each share represents a lot less of C3.ai than it did before. Since they went public back in 2020, their share count has surged by 23%. And that means that for investors to even break even, C3.ai needs to grow their business by at least 7% every year. Simple math, my friends.
Now, C3.ai’s revenue growth is barely keeping up with that pace. In fiscal Q1, their revenue was up just 11% from the previous year. Not exactly mind-blowing. But hey, management is optimistic and projecting some better numbers ahead. They’re aiming for 19% growth in fiscal Q2 and 15% for the whole of fiscal 2024.
It’s important to remember that C3.ai is still a relatively young company, born in 2009. They’re heavily reliant on a handful of contracts, which makes their revenue streams a bit clumpy and unpredictable. So if you’re investing in this puppy, you better have your long-term goggles on. Don’t expect instant gratification.
Now let’s talk about the price tag. C3.ai is trading at around 10 times sales, which ain’t exactly cheap. But remember, it used to be way more expensive before the stock took a 45% nosedive.
So, should you buy C3.ai at these prices? In my humble opinion, yes. This company has some serious potential for massive gains in the long run. And now that the stock isn’t ridiculously overpriced, it’s not a bad idea to dip your toes in the water. But hey, keep in mind that C3.ai is in a volatile business. So be smart and keep your position small, maybe below 1% of your portfolio. Just in case things don’t go as planned, you won’t be crying over a huge loss.
But if it works out, boy, will you have yourself a multibagger that grew organically in your portfolio. And if it doesn’t, well, at least it won’t screw up your overall portfolio performance too much. So go ahead and take a calculated risk, my friends. AI is one wild ride.