C3.ai (AI 1.18%) stock has gotten a ton of attention this year as investors have jumped on the artificial intelligence (AI) hype train. The stock had tripled at one point year to date, but even after a pullback following a short-seller report, shares are still up 75% this year.

The focus on AI from investors hasn't let up either, but does that make C3.ai a buy right now? Or are there other AI stocks that investors should focus on?

To answer that question, we asked a C3.ai bull and a C3.ai bear to weigh in on the stock.

A digital image of a face.

Image source: The Motley Fool.

Bull case: C3.ai has solid resources and opportunities

Keith NoonanBefore getting into the bull case for C3.ai, I think it's important to say that the company's outlook remains highly speculative. Investors should seriously consider the concerns raised by Kerrisdale Capital and others with bearish takes on the stock. Even after some valuation pullback, C3.ai is trading at a rich valuation given its recent business performance and justifiable concerns about its short-term guidance and outlook. But the company does still have avenues to beating expectations over the long term. 

While the business has been operating at a loss, management expects to be profitable on a non-GAAP (adjusted) basis for its fiscal year that started this past April. Even if the shift to GAAP profitability is further out, the company also continues to look pretty solid on a financial basis. C3.ai ended its last reported quarter with nearly $790 million in cash and no debt, so it's well capitalized and has the resources to fund current operations and pursue new growth initiatives.

To be clear, some good questions about C3.ai's business and accounting practices have been raised, but the company has managed to win reputable clients. While its dependence on its largest customer Baker Hughes creates some risk, Baker Hughes is one of the world's leading oilfield services providers and is a trusted name. C3.ai also recently announced that the U.S. Air Force has designated the company's solution for predictive maintenance as its system of record.

In addition to existing service offerings, the company is also rolling out new generative AI technologies this year. While it's impossible to say with certainty what level of success these products and services will find on the market, it's possible that they could go on to be major performance drivers.

C3.ai is undeniably a speculative stock, but the company has solid financial footing and there are possible scenarios in which it could go on to be a winner for investors with high risk tolerance.

Bear case: Too many red flags

Jeremy Bowman: Imagine for a moment that investors weren't falling over themselves to buy AI stocks this year. Would C3.ai be getting any attention?

The company actually posted a revenue decline in its most recent quarter, and the supposed growth stock is still far from profitability. If AI is experiencing a boom, there's little evidence right now that C3.ai is benefiting from it.

In fact, it's not that hard to separate the software stock from AI. As recently as 2019, it had another name, C3 IoT, tying itself to the Internet of Things, which was the trendy technology of that era. It was previously called C3 Energy, a sign the company has been casting about for a sustainable identity since its founding in 2009.

These days, the business faces a number of challenges even as CEO Thomas Siebel insists it's about to turn the corner. The company's customer base is highly concentrated with Baker Hughes making up roughly a third of its revenue, and the energy sector making up around two-thirds of its business.

There's a problem with that since the oil and gas sector is highly cyclical. Right now, oil prices are up, but if they crash, which is likely in a global recession, C3.ai's oil and gas customers are likely to reel in their spending on tech initiatives like AI, putting a majority of C3.ai's business in jeopardy.

Beyond that, Kerrisdale made a number of good points in its short-seller report, noting that the CFO position has been a revolving door. C3.ai has also redefined the way it measures customers and records revenue multiple times, recently converting to a consumption-based model from a subscription-based model. And it has an unusually large number of unbilled receivables, prompting questions about the scrupulousness of its accounting methods.

In short, there are too many red flags here for investors to put their hard-earned cash into C3.ai.