If OpenAI's ChatGPT is the consumer-friendly face of artificial intelligence (AI), then C3.ai (AI +0.54%) is the enterprise-grade version.
And C3.ai's stock has been on a wild roller-coaster ride in 2023. The share price has more than doubled year to date, but it has also dropped by nearly 50% from the 52-week high it touched in May.
Where will this wild ride go next? More importantly, what could the stock do for you in the long run -- and is this a good time to pick up a few shares?
Image source: Getty Images.
C3.ai is not "ChatGPT Pro"
C3.ai's AI tools are radically different from the ChatGPT experience. Yes, that includes C3.ai's own generative AI package.
First and foremost, ChatGPT's AI engine was trained on a massive set of language data. There was fiction in there, news reports, scholarly articles, math problems with correct and incorrect answers, examples of strong and weak arguments, and much more. Certain parts of it rely on different programs and data sets. For example, ChatGPT is pretty good at writing and debugging computer programs. But in general, the ChatGPT engine is a generalist. Its system aims to generate a reasonable text response to any input.
By contrast, each one of C3.ai's dozens of sector-specific AI applications has been trained on data that is distinct to the industry or business function in question. It's like the hyper-specialized code-writing bit of ChatGPT, aimed at a plethora of handpicked functions. And it gets really specific. C3.ai offers one AI suite that helps banks manage their lending operations -- and another to combat money laundering. The supply chain solution is separate from the inventory management tool, and the operations platform for law enforcement is not the same as the one for defense intelligence.
There are some similarities in the experiences, especially when using C3.ai's generative AI systems, but ChatGPT's plain-text output is not comparable to the information-packed charts, graphs, and maps you get from C3.ai's generative AI tools.
In other words, C3.ai's powerful business tools are not comparable to the easy-breezy ChatGPT experience. The process of developing, testing, approving, publishing, and supporting these ultra-professional AI tools takes time and effort. Then, C3.ai's customers must perform similar maneuvers to get a new C3.ai application properly set up, connected to the right data inputs, and managed by people with the right training. It is in part because of these differences that the AI frenzy sparked by ChatGPT over the past year didn't light an immediate fire under C3.ai's business results. This is going to be more of a slow burn, likely to develop over the next couple of years.
NYSE: AI
Key Data Points
Is C3.ai a buy today?
Investing is a marathon, not a sprint. You want to make solid decisions today that can pay off in the long run.
So I don't mind that C3.ai's stock is trading far below its hyped-up recent highs and even further off the all-time peak it reached shortly after its initial public offering in 2021. If you believe in C3.ai's long-term prospects, any short-term price dips can be treated as buying opportunities.
And that's what I see here. C3.ai isn't exactly a classical value investor's type of ticker, since its focus on market-grabbing revenue growth has resulted in deeply negative bottom-line numbers. The only reasonable valuation metric to gauge it by is the price-to-sales ratio, which at 10 also looks lofty.
It takes a leap of faith to accept this cash-burning and loss-leading strategy, especially since the pipeline from a new product idea to a revenue-generating client deal is so long and slow. Then again, traditional investors should appreciate how hard it is to replace C3.ai's business-boosting AI tools. Rivals like IBM's (IBM +0.12%) Watson and Microsoft's (MSFT 1.40%) Azure Machine Learning overlap with some of C3.ai's functionality but there is no drop-in replacement for its unique enterprise-grade AI tools.
C3.ai founder and CEO Tom Siebel -- yes, the industry legend of Siebel Systems fame -- is excited about the recently introduced generative AI applications. In the fiscal first-quarter 2024 earnings call earlier this month, he noted 12 signed deals and 140 negotiations in the pipeline for this new product. "This is big," he said.
The long testing and installation process is off to a flying start, then. I'm not saying that C3.ai will see skyrocketing revenues and shrinking losses in the next few quarters, but the company sure seems poised for long-term success. If you can swallow a couple of years with uncomfortable bottom-line results, the C3.ai shares you buy today should help you build wealth in the long run.
