C3.ai (AI +0.45%) is relatively new to the public markets. It listed on the New York Stock Exchange in December 2020 at $42 per share and promptly soared 283% by the end of that month. But the company has struggled to meet investors' expectations on revenue growth and profitability, which has since eroded all of those gains (and then some). C3.ai stock trades at just $22.76 today, a steep 85% drop from its all-time high.
The company is operating in a brand-new industry -- arguably one it helped create -- called enterprise artificial intelligence (AI). It develops customizable AI applications that can be tailored to the needs of almost any company, making the advanced technology more accessible than ever before. Here's why the stock could be a great addition to your long-term portfolio at this heavily discounted price.
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C3.ai by the numbers
Artificial intelligence has proven its ability to complete complex tasks in a fraction of the time that humans can, making it an extremely valuable tool to both increase speed and reduce costs. As more companies gain access to AI, more will be learned about how we can collectively benefit from it.
C3.ai has seen an explosion of interest in its applications. In the last year alone, the number of industries it serves has doubled to 14, which has led to robust revenue growth and a soaring customer count.
|
Metric |
Fiscal 2019 |
Fiscal 2020 |
Fiscal 2021 |
CAGR |
|---|---|---|---|---|
|
Revenue |
$92 million |
$157 million |
$183 million |
41% |
|
Total customers |
21 |
25 |
89 |
105% |
Data source: C3.ai. C3.ai's fiscal year begins on May 1. CAGR = Compound Annual Growth Rate.
In the most recent third quarter of fiscal 2022 (which ended Jan. 31), C3.ai revealed further growth in its customer count to 110. But going forward, the company is changing the way it reports customers, re-categorizing them more as individual entities, which brings the official count to 218 as of right now.
According to C3.ai's guidance, it should generate $252 million in revenue for the fiscal 2022 full year, which would represent 37% growth compared to fiscal 2021. But the future looks infinitely brighter, as the company currently has $469 million in remaining performance obligations (RPOs), which are expected to convert into sales in the future. That's a 90% increase in RPOs compared to this time last year.
Artificial intelligence for all
The oil and gas industry is one of C3.ai's largest revenue sources. You wouldn't normally place that sector at the cutting edge of advanced technology, but the benefits are clear. Oil giant Shell monitors 10,000 devices using C3.ai's machine learning models, which currently make 1.3 trillion predictions per month. These are used to help prevent costly equipment failures and reduce greenhouse emissions.
But the company recently unveiled one of its most impressive deals yet. The U.S. Department of Defense has enlisted the C3.ai suite to help accelerate the government's adoption of artificial intelligence, spending $500 million on the initiative over the next five years. It could be an enormous boost to C3.ai's RPOs in future quarters.
Even the world's largest technology companies are using C3.ai to advance their own artificial intelligence ambitions. Both Microsoft and Alphabet's Google are collaborating with the company to build better solutions for their customers across the manufacturing, financial services, and telecommunications industries (among others).
NYSE: AI
Key Data Points
C3.ai stock might be a bargain
C3.ai management thinks the company's total market opportunity could be worth $271 billion by 2024. Given its sales figures over the last few years, it's clear that barely a fraction of that has been captured so far. That leaves a long runway for growth, especially for investors buying in at the presently beaten-down share price.
The company has a market valuation of just $2.4 billion today, yet it has over $1 billion in cash and equivalents on its balance sheet. Technically, that means investors are only valuing the AI business at $1.4 billion, which feels like a bargain given the $252 million in potential revenue this year -- but more importantly, the strong growth rate of 37% or more.
The one thing C3.ai needs to fix is its net losses. It's not a profitable company and could lose as much as $94 million during fiscal 2022. But it's still in the growth phase, where a company attempts to build scale so fixed costs become a smaller percentage of the overall revenue base, eventually allowing for a transition into positive earnings per share.
That could take a few more years, but C3.ai likely has the cash on hand to weather this period, and it could deliver an incredibly strong, unique business on the other side. That's why investors should view the 85% fall in its stock price as a long-term opportunity.
