If you are a long-term investor, now is prime time to buy top growth stocks — and C3.ai is a leading candidate.
What Is C3.ai?
C3.ai (NASDAQ:AI) is a leading enterprise AI software developer using advanced artificial intelligence techniques to fuel digital transformation. The company has seen an explosion of interest in its applications across a wide range of businesses. The number of industries it is serving has doubled to 14 in the past year, resulting in impressive growth.
Management believes that, by 2024, the company’s addressable market could be worth $271 billion. In short, there’s a long runway of growth ahead, especially if you buy at the current beaten-down prices.
C3.AI Is Down 82% From Its Peak
AI stock is relatively new to public markets, initially debuting in December 2020. Shares of AI were offered at $42 per share, and 15.5 million shares were first sold. Within days, the share price soared by more than 140%. By the end of the month, it had skyrocketed by 283%. Since those lofty heights, the share price has fallen by 82%.
Does that leave enough margin of safety to buy the shares now? Are they a steal, or will they fall further?
A Closer Look at the Numbers
Here are some highlights from the company’s second-quarter fiscal 2022 results:
- Total revenue for the quarter was $58.3 million, up from $41.3 million last year, representing an increase of 41% year over year.
- GAAP gross profit for the quarter was $42.3 million, up from $31.3 million one year ago.
- Subscription revenue for the quarter was $47.4 million, up from $35.9 million one year ago, an increase of 32% year over year.
- C3.ai’s full-year fiscal 2022 goal is $248–$251 million.
The growth rate of C3.ai is strong. However, one area that needs to be addressed is the company’s losses.
The company is not yet profitable, which is not entirely a surprise given that it is still in its growth phase. Although it may take a few more years to become profitable, the company will likely have the cash to reach a liftoff phase. Currently, the company has over $1 billion in cash and short-term investments on its balance sheet.
From our analysis, revenues should increase as follows:
- 2023: $333 million
- 2024: $428 million
- 2025: $824 million
- 2026: $1.2 billion
It’s hard to build a financial statement projection that leads to profitability before 2026, so the investment remains high risk until that corner has been turned.
Customers Include U.S. Department of Defense
C3.ai is operating in a brand-new industry that the company helped create. Enterprise artificial intelligence is new territory, but that’s what makes the reward-to-risk tradeoff so compelling. If the company can win customers across a broad range of sectors, it has the potential to sustain revenue growth for years to come.
Currently, C3.ai is being used by oil and gas companies, the U.S. Department of Defense, and even the world’s largest tech companies. Both Google and Microsoft are currently collaborating with C3.ai to develop and build better solutions for their customers.
Should You Buy Shares of AI Now?
Yes, C3.ai stock does carry some risk, especially amid the current tech sell-off. Despite that, AI shares look like an attractive long-term bet. The demand for advanced technologies will continue to grow, and C3.ai is leading the way.
The target price we have on the shares is $28.67, which represents almost 40% upside from current levels.