Here's Why Snowflake Stock Is Outperforming C3.ai Stock by a Wide Margin

In the year or so that they've both been public companies, the stock prices of Snowflake (SNOW -2.20%) and C3.ai (AI -2.42%) have gone in opposite directions. Yet on the surface, both of these businesses seem to be performing well.

In this video clip from Motley Fool Backstage Pass, recorded on Dec. 6, Fool contributor Jason Hall addresses the disparate returns of these AI software stocks and explains to Danny Vena and Jon Quast a key difference in their business results: Snowflake's customers are, broadly speaking, spending more money over time with the company, while C3.ai still has some work to do in this area.

Danny Vena: Now what's interesting here is these were both companies that essentially doubled on their IPO day last year, and then you come back a year later, and you have one company that -- if you look at Snowflake's performance, it's actually just right even with the S&P 500. I didn't do that same chart for C3.ai, but they're not doing nearly as well, are they Jason?

Jason Hall: It's ugly. It looks like this. You've got two stocks that are -- and this goes back to the beginning, and that's the thing. These companies -- their initial trading price was double the IPO price or thereabouts. So the first trade was made at substantially higher than the price IPO buyers were able to buy for. We saw that initial exuberance for both, where the stock prices went up, and then we saw that plummet through the spring. And then you see Snowflake stock has just continued generally [up] until recently it's come down a little bit. But generally, it's continued to move higher as it has added more customers. Those customers are spending more money on an individual basis and in [the] aggregate, and it's relying less and less on individual large customers. The opposite generally seems to be happening with Snowflake.

Vena: That's actually a reason why we as investors, generally -- and every case is different, I know that there are some stocks that I'll take a little nibble, I'll buy a small position that makes me watch the company because otherwise, I might not pay as much attention -- but generally, this is why we recommend not getting caught up in the IPO hype. The first day, you try to buy the stock, and you buy it at 100% gains from the IPO price, and then if you look at what it's doing a couple of quarters down the road -- or four quarters, in this case -- and you're seeing C3.ai has failed to capitalize on how well they're doing. They're doing OK, but we think they could be doing much better, whereas Snowflake is actually continuing to execute on a high level, and Snowflake is really bringing in the business.

Any thoughts on that Jason before we wrap this one up?

Hall: Yeah, I really think the key is the difference in broad execution and uptake. Snowflake is doing both things really well. It's proven that its economic model -- the services that it offers broadly for companies that have cloud data and multiple cloud providers, maybe even have their own in-house stuff they're doing -- the ability to get everything together, get your arms around all of it, is working. There's immense interest from companies to take advantage of that and Snowflake is executing, so it's doing both things really well.

What we don't know with C3 at this point, the contrast is obviously, it's doing really well because Baker Hughes is throwing money at it to leverage it. But what we don't know is what the broad uptake is going to be and if they can continue to execute across various industries that need to outsource this work or want to use its software versus building their own AI tools. That's it.

Vena: Fair enough. Again, this is one of the cases where the glare of the public spotlight essentially highlights blemishes that you might not have seen prior to the IPO, and that's the case that we're seeing here. I don't think either one of these companies is doing horribly, but the stock price right now is not reflecting the opportunity in C3.ai whereas it's more than reflected in the stock price of Snowflake, but Snowflake is so far executing.