Snowflake (SNOW 1.85%) and C3.ai (AI +8.09%) were two of the market's hottest tech stocks in 2020. Unfortunately, both stocks sputtered out this year as the market lost its appetite for pricey growth stocks.
Snowflake's stock has declined about 15% this year, while C3.ai's stock has tumbled nearly 60%. Both companies are still expanding, but their high price-to-sales ratios and lack of profits made them unappealing investments as the market rotated from growth to value stocks.
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However, Snowflake and C3.ai recently announced a new partnership that will enable Snowflake's customers to access C3.ai's AI Suite and prebuilt AI applications. C3.ai's chief product officer, Houman Behzadi, claims the partnership "will create significant time and operational efficiencies for Snowflake's customers" and make it the "operational platform of choice for enterprise AI applications."
This team-up sounds promising, but will it significantly benefit both companies and bring the bulls back to their stocks? Let's compare these two companies and see what the new partnership actually achieves.
What do Snowflake and C3.ai do?
Snowflake operates a cloud-based data warehouse for big companies. Large companies often store their data across a wide range of computing platforms and software, so Snowflake breaks down those silos and pulls all that data onto a single cloud-based platform -- where it can be fed into third-party software.
C3.ai offers enterprise AI services. Its C3.ai Suite enables companies to build their own custom AI services, which run on its algorithms. It also provides prebuilt AI applications that can be plugged into a company's infrastructure. These solutions can help companies schedule maintenance routines, optimize inventories, detect fraud, and strengthen their CRM (customer relationship management) systems.
What will this new partnership achieve?
Snowflake creates a unified data record for companies, but it's ultimately up to those companies to decide how to access, process, and visualize that data. For example, companies can use Salesforce's Tableau to sort that data into charts to analyze their business trends. Data scientists can pull data from Snowflake's platform to develop new machine learning and AI applications.
Snowflake served 186 of the Fortune 500 companies at the end of fiscal 2021 (which ended in January), and it ended the first quarter of 2022 with 4,532 customers. C3.ai served only 89 customers at the end of fiscal 2021 (which ended in April), but that still represented 82% growth from a year before.
Under the new partnership, Snowflake will integrate C3.ai's tools into Snowpark, its developer platform for data engineers and data scientists. Since Snowpark is already being used by AI software developers, it is a natural environment to showcase C3.ai's algorithms.
But will this move the needle for either company?
This partnership makes sense for both companies. Snowflake can offer Snowpark's developers "seamless" access to C3.ai's algorithms to expedite the development of new enterprise AI applications. C3.ai's customer base could grow as it gains more exposure to other industries via Snowflake.
Yet it seems doubtful this partnership will light a fire under either stock anytime soon. Snowflake's growth rates remain impressive -- its revenue surged 124% last year and is expected to rise 88% this year -- but its stock looks frothy at more than 60 times this year's sales.
C3.ai's revenue growth is less impressive. Its revenue rose just 17% last year as its heavy exposure to the macro-sensitive energy and industrial sectors throttled its growth throughout the pandemic. Analysts expect its revenue to rise 34% this year as some of those headwinds taper off, but the stock still looks expensive at 24 times this year's sales.
We might see more of Snowpark's developers use C3.ai's tools, and C3.ai might gain more customers and brand recognition through Snowflake. However, I don't think this is a game-changing partnership that will suddenly convince investors to turn a blind eye to their high valuations and gallons of red ink.
