C3.ai (AI 1.31%) attracted a stampede of bulls upon its public debut on Dec. 9, 2020. The enterprise artificial intelligence (AI) software provider caught the market's eye with its catchy ticker symbol, rapid growth, and the fact that Tom Siebel -- who previously sold Siebel Systems to Oracle -- was its founder and CEO.
C3.ai went public at $42, but it opened at $100 and soared to an all-time high of $177.47 on Dec. 22. At its peak, its enterprise value hit $16.7 billion -- or 91 times the revenue it would generate in fiscal 2021 (which ended in April 2021).
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But today, C3.ai's stock trades at about $25 with an enterprise value of $2.2 billion, or just 7 times this year's sales. The bulls retreated as its growth slowed down, it remained unprofitable, and rising interest rates popped its bubbly valuations.
The rally in AI stocks breathed some life back into C3.ai's stock over the past year, but it remains well below its IPO price. Could this out-of-favor AI company gradually recover over the next three decades and become a trillion-dollar one by 2050?
The mathematical path toward the 12-zero club
If C3.ai's revenue grows at a compound annual growth rate (CAGR) of 26% from fiscal 2023 to fiscal 2050, it could generate $143 billion in revenue by the final year. If it's still trading at 7 times sales, its enterprise value would exceed $1 trillion.
Even if investors warm up to C3.ai again and value it at about 10 times sales, it would still need to grow its revenue at a CAGR of 24% to join the 12-zero club by 2050.
Yet C3.ai's growth already cooled off significantly since its IPO. Its revenue rose 17% in fiscal 2021 as the pandemic throttled the growth of its core energy and industrial markets, but grew 38% in fiscal 2022 as those headwinds dissipated.
But in fiscal 2023, C3.ai's revenue grew a mere 6% as rising interest rates and other macro headwinds forced many companies to rein in their software spending. That slowdown was exacerbated by a shift from subscriptions to usage-based fees, which the company insists was necessary to attract more customers in this challenging market.
C3.ai expects its revenue to rise 11% to 20% in fiscal 2024 as the macro environment stabilizes and it rolls out new tools for generative AI platforms. Analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 20% from fiscal 2023 to fiscal 2026 -- but they also expect it to stay deeply unprofitable for the foreseeable future.
We should take those estimates with a grain of salt, but they suggest C3.ai will struggle to grow its revenue at a consistent mid-20s CAGR through fiscal 2050. C3.ai also still generates more than 30% of its revenue from a joint venture with the energy giant Baker Hughes, and that deal is set to expire in fiscal 2025. If C3.ai fails to renew that crucial deal, its revenue could drop further.
C3.ai still has a lot to prove
These issues already suggest C3.ai won't become a trillion-dollar stock by 2050, but it could face plenty of other challenges over the next three decades.
The rise of generative AI platforms could eventually render C3.ai's business obsolete. C3.ai develops AI algorithms which can be plugged into a company's existing software infrastructure to automate and accelerate certain tasks, but new generative AI tools might accomplish the same thing at a lower price.
C3.ai claims it can stay ahead of that curve by using ChatGPT and other generative AI tools to develop more AI-driven algorithms, but it could still eventually become an unwelcome middleman in the growing AI market.
Meanwhile, C3's constant management changes (including three CFOs since its IPO), shifting growth metrics, customer concentration issues, and track record of overpromising and underdelivering simply don't inspire much confidence in its future. Its insiders have sold nearly four times as many shares as they bought over the past 12 months, and 32% of its shares were still being shorted as of Sept. 28.
Focus on 2025 instead of 2050
That glaring lack of insider and investor confidence suggests C3.ai needs to overcome its near-term issues before it can even be considered a viable investment. Therefore, investors should focus on whether or not it can get its act together and make it past the dreaded expiration of its Baker Hughes deal in fiscal 2025, instead of where its stock might end up in fiscal 2050.
