THE 3C’S OF AI

(AI), (AMZN), (GOOG), (MSFT), (ACN), (BAH), (MTCH), (PLTR), (SPLK), (SNOW)

The other day, I overheard my kids explaining AI to their friends using the video game they’re playing. 

By the time they finished, I realized two things: One, I'm never going to understand Fortnite. Two, if a preteen gets the potential of AI, we'd better pay attention.

Now, you might be thinking, “John, haven't we heard enough about AI?” Well, let me ask you this: Have you ever had enough money? Didn't think so. 

So, as I was saying, the AI market is set to explode from a measly $136 billion last year to a mind-boggling $827 billion by 2030. 

And here's the thing - we're still in the early innings of this game. It's like we've just finished the national anthem and the first pitch hasn't even been thrown. And in this ballgame, I've got my eye on a player that might just hit it out of the park: C3.ai (AI).

Now, before you roll your eyes at another ".ai" company, hear me out. This isn't just another tech firm slapping "AI" onto its name to ride the hype wave.

C3.ai is positioning itself as a one-stop-shop in the AI world. They're not just selling software; they're selling the picks and shovels for the AI gold rush. 

And let me tell you, in a gold rush, you want to be the one selling the tools, not the one with blisters on your hands from digging. Let’s look at the company’s recent performance, shall we? 

Based on their reports, C3.ai’s revenue jumped 16% to $310.6 million in fiscal 2024. I know that 16% might not sound like much to you youngsters used to seeing crypto coins go up 1,000% overnight, but in the real world of enterprise software, that's solid growth. 

And they're projecting $382.5 million for the current fiscal year - a 23% increase. 

Now, here's where things get interesting: C3.ai's customer agreements surged by 52% to 191, thanks largely to their powerhouse partner network. 

This network features big names like Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), Accenture (ACN), and Booz Allen Hamilton (BAH), which helped drive much of this growth.

In fact, 115 of those agreements came through these partners, marking a 62% jump from last year.

That's like your Tinder (MTCH) matches suddenly going through the roof (yes, I know how it works, I'm not living under a rock) — it means you're doing something right. 

Next, let's talk valuation. C3.ai is trading at 9 times sales. Is that cheap? Not by your grandfather's standards. But we're not buying IBM here, folks. 

We're buying a ticket to the AI revolution. And compared to some of the frothy valuations I've seen in my time, it's not that outrageous.

Sure, they're not profitable…yet. But neither was Amazon for years, and look how that turned out. 

Actually, the Street expects C3.ai's bottom line to grow at a 51% clip for the next five years. That's the kind of growth that can turn a modest investment into a down payment on that beach house in Malibu you've been eyeing.

But let's not get ahead of ourselves. While the growth story is compelling, there are some wrinkles to consider. That is, C3.ai remains a speculative play at this point. 

Right now, I’m treating C3.ai like that brilliant but erratic friend from college - tons of potential, but you're never quite sure if they're going to end up as a tech billionaire or living in their parents' basement. 

For one, I know that C3.ai’s transition to a pay-per-use model is smart. But, it's also disruptive. Because while their subscription revenue growth of 41% is impressive, it's also volatile.

If you review their reports, it’s easy to spot that this shift might be causing some growing pains. Just look at their latest fiscal quarter. 

While C3.ai’s revenue grew 20% annually, its operating costs also jumped by 11%. That's not exactly the kind of cost control that gets investors excited.

And let's not forget the competition. This is the world of AI, where everyone and their grandmother is trying to get a piece of the pie. That means C3.ai needs to keep innovating faster than its peers just to stay ahead.

There's also the question of valuation. When compared to peers like Palantir (PLTR), Snowflake (SNOW), and Splunk (SPLK), C3.ai is trading at a premium. This suggests that a lot of the growth potential might already be baked into the stock price.

And, of course, let's not forget about those earnings estimates. For the current fiscal year, analysts are expecting a loss of $0.54 per share. 

The next fiscal year looks better with an expected loss of $0.23 per share - an improvement of 56.7%, but still in the red.

So, what's the play here? Well, if you've got the stomach for it, C3.ai could be a worthy addition to the speculative portion of your portfolio. It's not for your widow and orphan money, mind you. 

But for those of you looking to spice up your investments with a dash of AI hot sauce, C3.ai might just fit the bill.