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1 Artificial Intelligence Stock With Over 95% Upside, According to Wall Street

By Anthony Di Pizio – Sep 8, 2021 at 9:23AM

Key Points

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This is the creator of the enterprise AI industry, and it's serving some of the world's largest companies.

As we observe the S&P 500 stock market index near all-time highs, it becomes increasingly challenging to find companies that still present great value.

If you don't already own them, it might feel like you've missed out on some of the most popular high-growth technology stocks as they continue to trend higher. But there's one technology company the market might be overlooking right now.

Artificial intelligence (AI) is an emerging industry, and C3.ai (AI -5.43%) has developed an entire market all for itself. Known as Enterprise AI, the company can build AI applications for just about any industry in the world, and customers are flocking to it.

Wall Street firm Wedbush Securities thinks the stock could rise by over 95% from current levels, and here are some points in favor of that prediction. 

A digital face appearing in an artificial world, with a person monitoring the computer controls.

Image source: Getty Images.

Unparalleled potential

The internet has changed the way the world does business. It allows the smallest of stores to reach the furthest corners of the globe, making growth and success far more accessible. But the internet has left some industries behind, namely those that are most reliant on human input. Think about real estate brokering or the legal profession, for example.

Artificial intelligence is the next frontier, and although it's still in its infancy, it's already dragging labor-intensive businesses into the digital world. It helped to build companies like Zillow Group (Z 0.46%), because without AI and machine learning it wouldn't be able to track the entire property market across the U.S. in real-time, enabling it to buy houses directly from sellers (removing real estate agents from the equation). 

But Zillow is a multi-billion dollar company with technology at its core, and that's where most of its research and development spending goes. However, most companies don't have the resources or talent to build AI applications in-house. That's the gap C3.ai fills -- and right now, it's the only player in the game.

World-class collaborations

From the oil industry to banking, C3.ai has a portfolio of 98 customers including some of the largest companies in the world. C3.ai's suite of products includes thousands of AI applications that can reduce the amount of programming required by 99%, meaning it's close to a plug-and-play solution for these customers who want to adapt artificial intelligence in order to scale their businesses.

C3.ai entered into a joint venture with oil giant Baker Hughes in 2019 to develop a new suite of AI tools. Dubbed BHC3.ai, the applications help oil companies predict equipment failures, reduce carbon emissions, and improve efficiency. The technology has been taken up by industry leaders like Royal Dutch Shell, which is having so much success that it just signed a five-year extended agreement. 

But C3.ai also has a growing list of collaborations with other technology companies, aimed at developing more holistic solutions for industries that could benefit from artificial intelligence. For example, the recent first-quarter earnings announcement revealed a new partnership with Alphabet's Google Cloud to build solutions for the manufacturing, healthcare, telecommunications, and financial services industries. That's in addition to an existing three-year-old deal with Microsoft's Azure cloud platform. 

Strong financial performance

Upon listing in December 2020, C3.ai's stock rallied to prices as high as $161, but it has steadily declined to levels around $50 today. The company has not yet lived up to the blockbuster expectations surrounding revenue growth and profits. 

But it has enormous potential, and Wedbush's $100 price target reflects that. Financial performance is improving, and since it can take up to six months to deliver an AI application into the market, revenue growth tends to lag customer growth. C3.ai's 98 customers in the fiscal first quarter represents an 85% increase compared to the same period last year, which sets up a potential revenue surprise in the future. 

Metric

Fiscal 2020

Fiscal 2021

Fiscal 2022 (Estimated)

CAGR

Revenue

$156.7 million

$183.2 million

$245.0 million

25%

Data source: Company filings. CAGR = compound annual growth rate.

The company's fiscal 2022 revenue estimate hints at a growth acceleration to above-trend levels, which has already come to fruition in the fiscal first quarter, and is expected to improve further next quarter. 

Metric

Fiscal Q1 2022

Fiscal Q2 2022 (Estimated)

Revenue

$52 million

$57 million

Revenue growth (YOY)

29%

37%

Data source: Company filings. YOY = year over year

These results reinforce the fact that C3.ai's rapid customer growth will translate into a stronger financial picture going forward.

While the company isn't profitable yet, it maintains a gross margin above 75%, which allows it to reinvest revenue into the business to drive growth. When revenue growth peaks in the future, it can cut back expenses and deliver earnings to investors. For now, it's all about building scale.

The stock trades at 21 times the estimated fiscal 2022 sales, which appears expensive at face value. But if revenue continues to grow at an above-trend pace, this multiple will shrink significantly, which will make the stock look like fantastic value in retrospect for patient, long-term investors who buy it now. 

After all, it's hard to put a price on a business that effectively operates alone in a brand new industry. But Wedbush's $100 target is a good starting point as C3.ai further monetizes its powerful customer base.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), C3.ai, Inc., Microsoft, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.

Stocks Mentioned

C3.ai Stock Quote
C3.ai
AI
$12.20 (-5.43%) $0.70
Microsoft Stock Quote
Microsoft
MSFT
$245.42 (-0.80%) $-1.98
Alphabet Stock Quote
Alphabet
GOOGL
$92.83 (-0.94%) $0.88
Zillow Group Stock Quote
Zillow Group
ZG
$34.05 (0.27%) $0.09
Alphabet Stock Quote
Alphabet
GOOG
$93.07 (-0.94%) $0.88
Zillow Group Stock Quote
Zillow Group
Z
$35.10 (0.46%) $0.16
Baker Hughes Stock Quote
Baker Hughes
BKR
$27.11 (-3.45%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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