C3.ai is blazing a trail in the world of AI, catching the attention of the biggest companies worldwide. This validation is one reason investors are adding the stock to their portfolios, especially since it has dropped over 90% from its all-time high.
It’s a billion dollar company that has landed trillion dollar partnerships with a majority of the FAANG companies. So, is now the time to add C3.ai (AI) shares to your portfolio?
What Is C3.ai?
C3.ai provides enterprise AI software. The company was named a Leader in the 2022 Forrester Wave for AI and Machine Learning Platforms in large part due to its turnkey enterprise AI applications.
Although C3.ai partners with tech giants (focusing on cloud services), it operates in many industries, from financial services to oil and gas to healthcare.
In the energy industry, C3.ai is helping fuel tycoons run cleaner operations, reduce carbon emissions, prevent major environmental disasters, and predict equipment failures. C3.ai actively works with Shell, Baker Hughes, and Microsoft as part of the Open AI Energy Initiative, which aims to overhaul the energy industry through AI-powered software.
C3.ai also works with the U.S. Air Force, the Department of Defense, Cargill, Raytheon Technologies, Koch, and dozens of other global leaders.
Looking at C3.ai’s Financial Results
Last year, C3.ai and Microsoft closed over $200 million in deals for the Azure cloud platform — representing just one partnership.
Deals like this have spurred top line growth. Total revenue hit $183.2 million, an increase of 17% year over year. Subscription revenue accounted for 86% of total revenue.
In early 2022, C3.ai had a solid first quarter and pulled in $52.4 million in revenue — an increase of 29%. Strong results continued into Q2 2022. Revenue was $58.3 million, representing an increase of 41% year over year.
C3.ai’s subscription revenue was equally impressive, jumping to $47.4 million for the quarter. These trends have continued into fiscal Q3 2022 and Q4 2022. Fiscal 2022 total revenue was $252.8 million, an increase of 38% from a year prior.
As reported in the first quarter of Fiscal 2023, C3.ai announced its transition to a consumption-based pricing model with the intent to fuel growth. This latest quarter is the seventh consecutive period in which C3.ai met or exceeded its revenue guidance.
While recent double-digit percentage growth rates are expected to drop to single digits, the company has attributed this slowdown to macro headwinds — not competitive challenges. Like so many companies, C3.ai is riding out recession fears. In early September 2022, CEO Tom Siebel said, “We’ll emerge from this recession a stronger, more prosperous company.”
Diversification Is Expected To Fuel Annual Growth Rates
Siebel expects the company’s revenue growth to hit over 30% in Fiscal 2024 and beyond. The key to this growth is the changes made to C3.ai’s underlying business model. When the company went public in 2020, it generated most of its revenue from large enterprises via recurring subscriptions.
However, over the past year, C3.ai has focused on diversification to partner with smaller, lower-value customers and a more flexible pricing model. This approach has promise: C3.ai could experience accelerated growth if it works and its customer mix will be more diversified. The ultimate goal is to boost adoption and increase the company’s market share long term.
It’s important to note that C3.ai’s expansion efforts have so far prevented it from reporting profits. With so much market opportunity still untapped, C3.ai is still looking to invest in growth. The problem for the share price is investors’ risk appetite for high-growth, no-profit companies is currently low.
Nevertheless, the company has $900 million in cash and equivalents on its balance sheet, meaning C3.ai can spend aggressively for now.
Is Now the Time To Buy AI Shares?
C3.ai estimates that by 2025, its opportunity in the market could be worth nearly $600 billion. Still, the immediate road ahead will likely be rocky.
We see fair value sitting at $15.47 per share. Any selloff down to the $11-$12 region would offer ample margin of safety to provide a compelling reward to risk ratio for long-term buyers.