C3.ai (AI 3.02%) and Opera (OPRA -1.91%) both saw their stocks skyrocket amid the recent buying frenzy in AI-related stocks. Shares of C3, which develops AI algorithms that can be integrated into a company's existing software infrastructure, have soared 240% since the beginning of the year. Opera, which recently upgraded its namesake web browser with AI features, generated a year-to-date gain of nearly 210%.
Should investors buy either of these red-hot AI stocks right now? Let's review their business models, growth rates, and valuations to decide.
Image source: Getty Images.
Are C3 and Opera really AI stocks?
C3.ai claims it's an "enterprise AI software" company, but it was previously known as C3 Energy and C3 IoT (Internet of Things). It only renamed itself again as C3.ai in 2019 as the market became more interested in AI technologies.
If we peel back the layers of that onion, we'll realize that C3 still mainly develops the same machine learning algorithms it created before its big AI rebranding and IPO in 2020. These algorithms can certainly automate and accelerate certain tasks, but whether or not they're cutting-edge AI tools is a hotly debated topic between the bulls and bears.
C3 mainly serves big energy, industrial, and government clients, and over 30% of its revenue comes from a joint venture with the energy giant Baker Hughes (BKR -1.38%), which will expire in fiscal 2025. It also abruptly pivoted from subscriptions to usage-based fees last year as its growth cooled off. C3 insists usage-based fees will attract more customers in this tougher macro environment, but they could also reduce its near-term revenues and the stickiness of its ecosystem.
Opera only controls about 3% of the global web browser market, according to StatCounter, putting it in a distant fourth place behind Alphabet's (GOOG 9.96%) (GOOGL 10.22%) Google Chrome (63%), Apple's Safari (21%), and Microsoft's (MSFT 1.82%) Edge (5%). But it still ended its latest quarter with 319 million monthly active users (MAUs) across its ecosystem -- which includes its web, mobile, and gaming browsers as well as its Opera News app.
Opera generates most of its revenue from its advertising and search businesses. But this February, it partnered with OpenAI, the creator of ChatGPT, to launch AI-generated content services to its web browser's sidebar. That partnership led to its introduction of Opera One, a brand new version of its browser with integrated AI features, in late June. None of those AI features are generating meaningful revenue for Opera yet, but they brought a lot of bulls back to its stock.
Which company is growing faster?
C3's revenue rose 38% in fiscal 2022 (which ended last April) but only grew 6% to $267 million in fiscal 2023. It expects 10% to 20% growth in fiscal 2024. C3 mainly attributed that slowdown to the macro headwinds, which prompted large companies to scrutinize their software spending, but it also faces plenty of competition from Amazon Web Services (AWS), Microsoft's Azure, Google Cloud Platform (GCP), and other leading cloud infrastructure platforms which already integrate similar first-party AI algorithms into their enterprise-oriented ecosystems.
That competitive pressure -- along with C3's jarring shift to usage-based fees and its potential loss of Baker Hughes in 2025 -- make it tough to gauge C3's long-term growth potential. C3 is also still deeply unprofitable on a generally accepted accounting principles (GAAP) basis, and analysts expect it to stay in the red for at least the next few years.
Opera's revenue rose 32% to $331 million in 2022 as it offset its slowing MAU growth with its higher average revenues per user (ARPU) -- which were boosted by the rising usage of its gaming browser, new search and advertising features, as well as its ongoing expansion into higher-ARPU markets like North America and Europe.
But in 2023, Opera expects its revenue to only rise 13% to 18% as the competitive and macro headwinds reduce its ARPU. That outlook suggests its new AI browser won't really move the needle this year -- but it could still widen its moat against Google, Microsoft, and Apple over the long run. Unlike C3, Opera is profitable on a GAAP basis. It generated a net profit of $15 million in 2022, and analysts expect that figure to more than triple to $48 million this year as it reins in its marketing expenses.
The valuations and verdict
C3 still trades at 14 times this year's sales, which is a bit high relative to its near-term growth rates and challenges. Therefore, it still seems like investors are paying a premium for its catchy ticker symbol instead of focusing on its problems. Opera trades at just four times this year's sales. That lower valuation -- along with its more resilient business model, higher growth rates, and rising profits -- arguably makes it a much more compelling investment than C3 right now.
