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For the better part of the last two years, artificial intelligence (AI) stocks have been a darling of the investment community. Semiconductor giant Nvidia (NVDA) represents this revolutionary movement in technology, but established tech giants like Microsoft (MSFT), Amazon (AMZN), and Google (GOOG) are also making a number of efforts to enhance their AI capabilities. We’ve poured billions of dollars into it. Why not? The AI market is predicted to experience significant growth over the next decade, and nearly every industry is expected to feel its impact.
But while the Nvidias, Amazons, and Microsofts of the world have established themselves as major players in the AI space, many smaller companies are also fighting for traction in the competitive industry, including Some companies are equipped with AI. In their name to prove it. Here, we take a closer look at one of these companies and why Morgan Stanley gave it a careful post-earnings review.
About C3.Ai stock
Founded in 2009 by veterans Silicon Valley entrepreneur Thomas Siebel, C3.ai (AI), Enterprise AI platform We help businesses leverage technologies such as: cloud computing, Big Data and the Internet of Things (IoT) Gain insights and improve decision making. The company went public in 2020 and is currently valued at a market capitalization of $3.89 billion.
C3.ai stock On a year-to-date basis, it’s up 10.6%, slightly outpacing the S&P 500 index’s ($SPX) gain of 8.7%.
C3.ai bull case
Solid third quarter results: C3.ai’s latest quarterly results exceeded expectations for both revenue and bottom line. Stock price soared 24.5% After release.
The company is 3rd quarter of fiscal year ended January with 18% annual growth. Revenue growth was primarily driven by a 23% year-over-year increase in subscription revenue, which represents approximately 90% of the company’s total revenue.
Over the past three years, the company’s revenue has grown at a CAGR of 19.76%. Moreover, its strong growth is expected to continue, as its future earnings growth rate is pegged at 13.3%, nearly double the sector median of 6.6%.
C3.ai is not yet profitable, and its loss more than doubled in its most recent quarter to $0.13 per share from $0.06 a year earlier. However, the quarterly loss was smaller than the consensus estimate of a loss of $0.25 per share. Notably, the company’s losses have consistently exceeded consensus estimates, which speaks to prudent financial management for a startup operating in a capital-intensive space like AI.
The company ended the quarter with cash and equivalents of $723.3 million.
Diversified business: C3.ai’s operations are spread across a variety of industries, with the highest allocation being just 29% (state and local government). Other companies contributing the most to the company’s booking distribution are federal government, defense and aerospace (25%), manufacturing (16%), and agriculture (16%). Specifically, partner-supported bookings saw an impressive 337% year-over-year increase.
Additionally, the company’s partner network includes top companies such as Amazon’s AWS, Google Cloud, Microsoft, T-Mobile (TMUS), and Boston Scientific (BSX). At the government level, C3.ai partners with the U.S. Department of Defense, California’s San Mateo County, Daly City, Riverside County, and more.
With a diverse range of partners across industries, businesses, and government, C3.Ai is less susceptible to headwinds in specific industries and provides revenue stability.
Generative AI: C3.ai also powers generative AI services. In the third quarter, the company completed 17 of its C3 Generative AI pilots in a wide range of industries including federal government, defense, and aerospace. Agriculture and forestry; food processing, etc.
This follows 36 generative AI pilot agreements signed during the second quarter. 21 of our customers have a revenue base of more than $10 billion.
Additionally, C3.ai has reported strong results from GenAI customers. Law firm DLA Piper used C3 Generative AI to reduce attorney time by 80% to create her 200+ point due diligence analysis of limited partner agreements. Additionally, European law firm Holcim, a leader in sustainable building solutions, has successfully completed a six-month pilot. His partnership with C3.ai led to his four-year contract to scale the reliability of his C3 AI across over 100 cement plants.
C3.ai bear case
Risks of shifting revenue strategies: C3.ai is currently in the process of transitioning its revenue strategy. From subscription-based services to more modern consumption-based services that charge per CPU/GPU usage rather than pure subscription services.
This type of transition is gradual and can involve many growing pains, as we saw in the SaaS industry nearly a decade ago. Notably, management revealed that this transition could result in negative revenue growth for the company followed by flat revenue growth.
Lack of profitability: C3.ai has low profitability, which remains a concern for both current and prospective investors. Additionally, strong peers such as Palantir (PLTR) and Salesforce (CRM) operate in industries that overlap with his C3.ai, making the path to profitability even more difficult.
Steep rating: C3.ai remains unprofitable, so some traditional revenue metrics do not apply. However, some suggest the stock may be overvalued at current levels.
The company is trading at a forward price/sales ratio of 12.37 and an enterprise value/sales ratio of 10.05, well above the tech sector median of about 3x and surging higher than AI software stocks such as UiPath (PATH). are doing.
AI Stock Conclusion
The analyst community also has mixed feelings about C3.ai stock. Case in point, Morgan Stanley analyst Sanjit Singh threw a damper on the post-earnings stock price rally by giving the stock an “underweight” rating and a $21 price target. He said the company’s stock valuation remained unattractive at more than 12 times sales, adding: “If the growth profile of the business accelerates and underlying profitability begins to flow through the model, we will see a more constructive I look forward to moving forward in this direction.”
Meanwhile, Wedbush analyst Dan Ives reiterated his rating of “outperform” and raised his price target to $40 from $35. “This quarter marks a step in the right direction for C3, as the company’s entire product portfolio continues to generate unprecedented demand for AI platforms aimed at improving operations, optimizing processes, and transforming businesses. I think that is the case.”
The overall analyst community considers the stock a Hold, with an average price target of $29.17, representing an 8.1% discount to Thursday’s closing price. Morgan Stanley’s price target suggests a deep discount of 33.8%, while Ives’ highest expected price target suggests an expected upside of 25.9%.
Of the 14 analysts covering the stock, 3 have a “strong buy” rating, 7 have a “hold” rating, 2 have a “moderate sell” rating, and 2 have a “strong sell” rating. It becomes.
On the date of publication, Pathikrit Bose did not have (directly or indirectly) any positions in the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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