Artificial intelligence (AI) is all the rage, but not every company developing AI-related products and services deserves your investment dollars. Enterprise AI software vendor C3.ai (AI -2.06%) and AI lending marketplace Upstart (UPST -2.64%) are both posting big losses, and neither are seeing huge upticks in demand amid the AI boom. Both stocks could turn out fine in the long run, but market-beating returns are far from guaranteed.

C3.ai

While shares of enterprise AI software provider C3.ai have shot up this year, the business itself hasn't done nearly as well. Revenue was essentially unchanged in the fiscal fourth quarter, which ended on April 30, and the company expects revenue growth of just 15% in fiscal 2024.

It seems that nearly every company is doing something with AI, and yet C3.ai is struggling to grow at all. That's a huge red flag and a sign that the company's products aren't aligned with what potential customers are looking for.

C3.ai sells its AI development platform, as well as a few dozen enterprise AI applications. The development platform is seeing little demand: It generated just 17% of bookings in fiscal 2023. Meanwhile, demand is picking up a bit for C3.ai's applications. The company expects to close about twice as many deals in its sales pipeline over the next year.

Unfortunately, more deals won't translate into much revenue growth and certainly won't translate into profits. C3.ai is chronically unprofitable: On $267 million of revenue in fiscal 2023, the company posted a net loss of $269 million. Free cash flow was also deeply negative for the year, coming in at a loss of $187 million. That free-cash-flow loss includes the benefit of adding back $217 million in stock-based compensation.

If C3.ai were seeing a much stronger growth acceleration driven by increased interest in AI, it would be more reasonable for investors to ignore these losses. But instead, C3.ai is a slow-growing AI company that's burning cash at a concerning rate. That's not a combination that's likely to produce market-beating returns.

Upstart

Upstart is an AI lending marketplace that found out the hard way that economic cycles still happen, even when you're using fancy technology. The company's loans performed well during the early stages of the pandemic, but once the economic environment became more turbulent, loan performance plummeted far below expectations. Unable to unload some of those loans, the company started putting them on its own balance sheet.

Upstart is making progress turning itself around. Loan performance has recovered to more acceptable levels, and the company recently announced multiple long-term funding agreements that will enable more than $2 billion of loans over the next year. The company has improved its AI models considerably, pushing 23 model upgrades in the first quarter alone.

While Upstart is moving in the right direction, it's hard to look past the company's terrible financial results. Revenue plunged 67% year over year in the first quarter to $102.9 million, and the company posted a net loss of $129 million. Its cash balance has been more than cut in half over the past year to less than $500 million. Given the rate at which Upstart is burning cash -- operating cash flow was a loss of $74 million in the first quarter -- the company is in a fragile position.

While the idea of using AI to produce better outcomes for lenders, compared to traditional credit scores, certainly makes sense, Upstart has yet to prove that it actually works across an economic cycle. Upstart looks like a high-risk, high-reward investment. Buying the stock may pay off in the long run if the company's AI models produce consistently good results, but so far, that just hasn't been the case.