So, you’ve heard concerning the hype surrounding AI shares and wish to begin investing. You perform a little research and uncover there’s an organization whose ticker is actually “AI.” That needs to be a superb place to start out, proper? Mistaken.

 

On the floor, C3.ai (Nasdaq: AI) may look like a no brainer relating to high AI shares to purchase. However, you need to keep distant from this firm. Right here’s why.

What’s C3.ai?

C3.AI is a little bit of an all-in-one AI software program firm. It presents ready-to-use AI purposes throughout a variety of various industries together with CRMs, provide chains, protection & intelligence, monetary companies, and extra. C3.AI additionally boasts a handful of spectacular shoppers together with Koch Industries, Shell (NYSE: $SHEL), and the U.S. Air Pressure. C3.ai focuses totally on enterprise AI options, that means that it presents generative AI instruments for firms – not shoppers. 

C3.AI: Final Three Quarters

To get a greater understanding of whether or not or to not purchase C3.ai inventory, we have to have a look at its monetary statements. That is how we decide how a lot cash the corporate makes (Or, in C3.ai’s case, loses). Right here’s how C3.ai has carried out during the last three quarters:

Income: $78.4 million (+18% yearly)
Web Revenue: $-72.63 billion (+10% yearly)

Income: $73.22 million (+17% yearly)
Web Revenue: $-69.78 million (-1% yearly)

Income: $72.36 million (+11% yearly)
Web Revenue: $-64.36 million (+10% yearly)

 

Straight away, we will see that C3.ai is posting pretty reasonable income progress. Annual income progress of 18% isn’t unhealthy. However, it’s additionally not overly spectacular. There are dozens of a lot bigger firms in much less thrilling industries which are rising quicker than this. However, it’s not C3.ai’s reasonable income progress that considerations me – it’s the constant losses.

 

C3.ai has posted more and more bigger losses over the previous 3 years – which is unhealthy information for C3.ai inventory.

 

2021: Web lack of $55.7 million
2022: Web lack of $192.07 million
2023: Web lack of $268.84 million

 

There are some eventualities the place this kind of rising loss is appropriate. For instance, Amazon (Nasdaq: AMZN) was famously unprofitable for years whereas it constructed up its enterprise. For instance,  if C3.ai’s income was hovering and the corporate was investing closely again into its companies then I is perhaps prepared to miss these losses. However, the corporate’s income is exhibiting solely reasonable progress whereas losses improve quickly – not good.

 

The principle aim of an organization is to earn a living and return worth to its shareholders – both by inventory worth progress or dividends. C3.ai goes in the other way and making much less cash yr after yr. So, at what level do buyers begin to view C3.ai as merely an unprofitable failure of an organization?

 

Proper now, C3.ai is valued at near $3.4 billion. However, there’s a superb probability that a lot of this valuation comes from the hype surrounding AI. If C3.ai posted comparable income and internet earnings numbers however operated in, say, the waste administration business then I doubt it will be price $3 billion. 

 

So, what occurs after a number of extra quarters of sluggish progress and unprofitability? C3.ai’s inventory and valuation will rapidly begin to plummet.

C3.AI Most Latest Earnings Name

To provide C3.ai a good and unbiased shot, I dug by the corporate’s most up-to-date earnings report. Right here’s what I discovered:

 

Q3 income was $78.4 million, up 18% in comparison with $66.7 million final yr.
Quarterly GAAP gross revenue was $45.3 million, a 58% gross margin (that is gross revenue, not internet).
In Q3, C3.ai closed 50 agreements, up 85% year-over-year
Buyer Engagement for the quarter was 445, a rise of 80% in comparison with 247 one yr in the past
C3.ai’s AI system makes use of “full traceability to seek out the reality.” Which means its AI tech can all the time reference supply paperwork or knowledge for every perception it generates.

 

In all equity, I’ve to say that C3.ai really had a reasonably strong quarter. However, once more, quite a lot of this progress simply seems like C3.ai being in the proper place on the proper time. I don’t count on the constructive information from this quarter to result in C3.ai inventory positive factors down the highway. Let me clarify.

Right here’s Why You Ought to Keep Far Away From C3.AI Inventory

Earlier than I leap into it, keep in mind that C3.ai inventory is already down over 75% since going public in late 2020. However, that’s not the rationale that you need to keep away. After digging by C3.ai’s investor presentation, quarterly earnings, and web site, my greatest takeaway is that…there isn’t a huge takeaway. That is horrible information for C3.ai. To provide you a greater concept of what I imply, enable me to make a little bit of a comparability.

C3.ai Vs. Dropbox

If I needed to evaluate C3.ai to a different firm, I’d evaluate it to the cloud storage firm, Dropbox (Nasdaq: $DBX). Each of those firms are simply outmatched inside their respective industries, which is able to make it very onerous to develop rapidly. Dropbox primarily presents cloud storage merchandise. So, it competes instantly with the likes of Microsoft Azure (Nasdaq: MSFT), Amazon Internet Providers (Nasdaq: AMZN), and Google Suite (Nasdaq: GOOG). Powerful competitors.

 

Because of the competitiveness of its business, Dropbox simply has a really onerous time competing and rising considerably year-over-year. I imply, it’s not a horrible firm and nonetheless posted a good $2.5 billion in 2023 annual income. However, Dropbox’s progress has stalled at round 7-12% in previous years and the corporate’s inventory is up simply 11% over the previous 5 years. I don’t essentially suppose Dropbox will go bankrupt anytime quickly. However, the corporate (and its inventory costs) will wrestle to develop. C3.ai inventory will probably share an identical destiny.

 

C3.ai presents enterprise AI options. Which means compete instantly towards the world’s greatest and brightest firms. This contains Nvidia (Nasdaq: $NVDA), OpenAI, Google, Microsoft, Apple (Nasdaq: AAPL), and plenty of others. This doesn’t imply that C3.ai gained’t be capable to lure any new prospects to develop income. However, it’s going to probably be an afterthought inside the business and have a really onerous time competing towards the world’s greatest tech giants.

 

For C3.ai, the most probably state of affairs is modest 5-15% annual progress within the coming years – which is able to solely result in subpar inventory returns. As an investor, I’d advocate staying away. Happily, there are rather more thrilling AI firms to spend money on than C3.ai.

 

I hope that you just’ve discovered this text invaluable relating to studying about C3.AI inventory. If you happen to’re desirous about studying extra, please subscribe under to get alerted of recent articles.

 

Disclaimer: This text is for basic informational and academic functions solely. It shouldn’t be construed as monetary recommendation because the creator, Ted Stavetski, shouldn’t be a monetary advisor. Ted additionally doesn’t personal shares of C3.ai.