Is C3.AI Worth An Investment

I’m not going to write here that C3.ai is the best AI firm in the world.

They are not.

They have been around for a while and that has helped them with the first-mover advantage.

The AI software they develop helps corporations finish tasks quicker and more efficiently.

The stock hasn’t cared much for its business lately causing the stock to be beaten down.

C3.ai stock was trading at $183 per share in 2021 and has now settled around the low $20 range.

Needless to say, a drop that big stemmed from big questions about it’s the effectiveness of its business model and an overhyping of its AI business.

It won’t be the last to drop that hard and I do believe a wide swath of AI stocks won’t be able to meet the lofty expectations from investors.

It currently has a portfolio of over 40 ready-made software applications designed to help businesses accelerate the adoption of artificial intelligence.

C3.ai made a significant change to its business model two years ago, and it's starting to pay dividends.

C3.ai serves businesses across 19 industries, many of which wouldn't typically be associated with cutting-edge technologies like AI. They include manufacturing, oil and gas, utilities, and more. It's because C3.ai offers a unique value proposition - the company can deliver tailored AI solutions to customers in as little as three months following an executive briefing.

Oil and gas giant Shell, for example, deployed over 100 C3.ai applications across its organization. They're used to monitor over 10,000 items of equipment for predictive maintenance, which reduces the probability of a catastrophic failure. Plus, at one of Shell's liquefied natural gas plants, C3.ai's asset optimization software reduced carbon emissions by 355 tons per day. That's the equivalent of taking 28,000 vehicles off American roads.

C3.ai sells its AI software directly to customers, but it also has sales partnerships with tech giants like Microsoft, Amazon, and Alphabet. They offer C3.ai's applications on their cloud platforms, placing them in front of millions of customers the company might not have had access to otherwise.

C3.ai generated a record $87.2 million in revenue during Q1, representing a 21% increase from the year-ago period. It also marked the sixth consecutive quarter of accelerating growth, which is a direct result of a strategy shift inside the company two years ago.

C3.ai came public in December 2020, during a frenzy in the cutting-edge new technology called generative AI. 

According to a recent survey by PwC, around 70% of top corporate executives expect AI to significantly change the way their organization creates value over the next three years. PwC also expects AI to add $15.7 trillion in value to the global economy by 2030, so the financial opportunity is enormous.

The company only has a growth rate of around 20% and that won’t cut it in the highest growth subsector in the tech sector.

Its change in strategy is starting to turn around and if they can nudge up the growth rate to 35%, I do believe the stock will go from the low $20 to the low $30.

There is a trade here, with 1-2% of your portfolio, and if we get a big market sell-off down to the teens, I would buy and hold this stock for the medium turn for a profitable trade.

As for a long-term buy and hold, I don’t believe the company has done enough to justify investors giving that much faith in them.