Usually you want to steer clear of a stock that has fallen by 91.8% but in the case of C3.ai the share price plunge since December 2020 might be an opportunity to pick up a world class stock at bargain basement prices.
The sexy ticker symbol, AI, isn’t the only attractive thing this advanced technology company offers to investors. Partnerships with Amazon, Alphabet and Microsoft are just part of what make the investment case so compelling.
The most enticing aspect of the C3.ai investment thesis, though, is its position in an industry forecast to add over $12 trillion in output to global economies by the end of the decade.
The Bull Case for C3.ai
AI is hard to create. Although estimates are that over two thirds of enterprises will implement artificial intelligence in some form or another by 2030, few have the capability to execute. And that’s where C3.ai offers a compelling value proposition to its partners: it sells customizable AI to its customers.
It’s clear that the market is embracing the firm’s offerings. In the past quarter, the company increased its customer count to north of 225, a yoy gain of 27%.
For shareholders, the compelling aspect of this news was the broad customer mix that spanned sectors from oil and gas to finance, and from manufacturing to technology. Broad sector applications equates to large future opportunities and risk mitigation – the company isn’t tied to a single sector, like say a fintech firm is to economic swings.
Perhaps the most intriguing aspect of C3.ai is its partnerships with 3 top FAANG stocks. Given the enormous resources possessed by Alphabet, Amazon and Microsoft individually, let alone collectively, it’s somewhat astonishing that C3.ai has partnered with all three.
What’s not surprising about the relationship, however, is that all three are in a vicious fight to win share of the Cloud, and C3.ai can help small businesses to embrace artificial intelligence in a useful way for their respective operations.
But the technology sector is only the tip of the iceberg for C3.ai. Here are a handful of the applications that rely on it:
- The US airforce increases aircraft readiness using C3 AI reliability
- Philips adopts C3 AI to optimize supply chain
- Shell uses C3 AI to assess equipment failures
Is C3.ai Undervalued?
Value investors have a chance to pick up a growth stock trading at bargain basement prices following a big selloff on Sep 1 after hours when earnings results disappointed shareholders, triggering a panic selloff to the tune of 17%.
In spite of growing quarterly revenues by 25% year over year, economic headwinds clearly rattled investors who were concerned about the company’s ability to lock in large contracts.
What should be exciting investors, in our view, is management’s decision to move from a subscription to a consumption model, much like Snowflake. This commercial shift can only be done by company’s that have exceptional product-market fit, a loyal customer base, and growing product usage.
The company’s balance sheet includes $339 million of cash and cash equivalents alongside $620 million of short-term investments. That’s close to a billion dollars of liquidity for a company trading at $1.6 billion in market cap.
Having generated $252 million in revenues in its last fiscal year that suggests the company is trading at just 3x sales net of cash. Is that a deal for a firm expected to have $1.5 billion in sales by 2027? Absolutely.