C3.ai (AI 1.55%) has received a lot of attention since AI (artificial intelligence) became a business buzzword. With the abbreviation directly in its name, it's pretty clear that C3.ai is an AI platform.

But it also has a few caveats you wouldn't expect for a company that's focused on AI. So, what are those caveats, and will they be a boost or a buzzkill over the next three years? Let's find out.

C3.ai has a heavy concentration in an unlikely industry

C3.ai provides enterprise AI tools to its clients. It has products for multiple fields, including financial services, healthcare, and transportation. However, despite its broad offerings, it is highly concentrated in one industry: Oil and gas.

In the third quarter of fiscal year 2023 (ended Jan. 31), this sector made up 72% of C3.ai's business. That's a pretty heavy concentration, and it gets worse. C3.ai is heavily dependent on one client in particular, Baker Hughes (BKR -0.05%), which provides solutions for oil and gas clients. In FY 2022 (ended Apr. 30, 2022), Baker Hughes made up 31% of C3.ai's revenue. 

If something happened to this relationship, C3.ai's business would be in trouble, as that's a massive chunk of revenue tied up with one company.

Unfortunately, short-seller Kerrisdale Capital alleged just that and believes C3.ai's relationship with Baker Hughes is deteriorating. In C3.ai's response to Kerrisdale, it only discussed its accusations of Kerrisdale's unbilled receivables accusations while leaving the topic of its relationship with its top client untouched.  

That's a huge red flag for me, and it could spell out disaster in a couple of years when various contracts expire.

C3.ai's finances are a mess

C3.ai's financials are also a mess, with the company posting negative revenue growth. In Q3, revenue decreased by 4%, but that drop was caused by C3.ai's switch from a subscription to a consumption model. Before the switch, C3.ai was growing its revenue at a 25% pace. This occurred during the second quarter of C3.ai's fiscal year, so investors will learn how the company is truly doing when this change is lapped in the quarter beginning Sept. 1.

Until then, investors will have to endure bad comparisons.

On the bottom line, C3.ai is a young company posting heavy losses. In Q3, C3.ai brought in $66.7 million in revenue but spent $43.5 million on sales and marketing and $55.1 million on research and development. That's a substantial gap and why C3.ai posted an absurd 108% operating loss margin.

With operating expenses rising 17% year over year, C3.ai appears unconcerned bout controlling its expenses. But, with $772 million in cash and short-term investments on its balance sheet, C3.ai can afford to operate at this loss for a bit longer. However, it would require issuing additional shares or taking on debt in about three years if its margins don't improve.

That puts C3.ai in a precarious situation, and it does not look investible.

Additionally, C3.ai trades at a hefty premium.

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At 16.21 times sales, the stock is far from cheap. With plenty of other tech companies with brighter futures trading around the same range, I'm not sure why you'd want to own shares in C3.ai, as it was hovering around 4 times sales before AI became an investing buzzword.

I'm not sure where C3.ai will be in three years, but it doesn't look great from today's current trends. As a result, I think investors should look elsewhere to gain exposure to AI.