C3.ai (AI 3.02%) is a pure-play artificial intelligence (AI) stock that has been on fire this year. It has more than tripled in value, and the company is expecting lots of growth ahead thanks to the excitement surrounding ChatGPT and the potential for AI solutions to transform industries.
But one of the criticisms around the business has been its reliance on oil and gas customers. Is that an issue investors should worry about? Let's take a look.
Oil and gas has accounted for one-third of bookings
C3.ai recently reported its year-end earnings numbers (its fiscal year ended on April 30). Of the company's bookings for the year, 33.8% originated from companies within the oil and gas industry. And that has been one of the big concerns surrounding C3.ai -- it has been perhaps too dependent on oil and gas, and specifically its partnership with Baker Hughes.
The company says that in fiscal 2023, with the help of Baker Hughes, it closed on 10 new oil and gas accounts, including with industry giant ExxonMobil. C3.ai's total revenue for fiscal 2023 topped $267 million, and rose 5.6% year over year.
But bookings may now be trending in a different direction
For the last three months of the fiscal year, C3.ai secured pilot and trial agreements with a broader set of industries compared to it usual customer mix. Below is a breakdown of the company's bookings and agreements by industry for fiscal 2023:
Source: Company filings. Chart by author.
It's an early indicator, but there does appear to be more of a mix and less dependence on oil and gas. In particular, the U.S. government may potentially be a much bigger customer for C3.ai in the future. In April, the company announced that the U.S. Air Force designated an application it was developing with C3.ai as the one it will use as its system of record for predictive maintenance.
That's great news for investors -- it could unlock a big growth opportunity for C3.ai, and mean that a stable customer like the U.S. Air Force will potentially play a much larger role in its future.
Is C3.ai a better buy?
These are encouraging developments for C3.ai as diversifying away from an oil and gas industry that has historically been volatile can reduce some of the risk of investing in the business. But investors who are worried about this risk may want to wait for another quarter or two to see if this is the start of new trend or just an anomaly.
For fiscal 2024, C3.ai is projecting sales between $295 million and $320 million, which at the midpoint would suggest growth of around 15%. While that's higher than the growth it achieved in fiscal 2023, it may not be the rate that investors would have been hoping for given all the hype around AI. It could be a sign that despite the more diversified results last quarter, the company may not be expecting a surge of business from the government or other customers.
C3.ai might make for a good investment if you're bullish on AI, but if you want to minimize your risk, you may want to hold off on buying the tech stock for now, at least to see if its customer mix remains as diverse as it was during the last quarter.
