Is C3.ai Stock Buy Now?

Artificial intelligence (AI) is becoming more prevalent in society as it is being used by more and more companies. C3.ai (Amnesty International 1.63%) It helps promote this by putting enterprise AI platforms within the reach of their customers.

However, C3.ai has had a tough experience in the general markets. Since it went public in late 2020, its shares have fallen more than 83%. Does this make this artificial intelligence company A valuable trap or an attractive trading investment at a massive discount?

A brain connected to the cloud.

Image source: Getty Images.

Unique artificial intelligence game

C3.ai makes enterprise AI more accessible by creating applications for businesses and industries that were previously slow to adopt AI. It has tools for industries ranging from oil and gas to the defense sector. One possible reason companies in these areas have not yet embraced AI widely is that it is difficult to recruit talent to develop in-house AI engines – as young people developing AI may prefer to work at a shiny new startup rather than an oil producer. C3.ai offers those older companies a solution to this challenge.

By and large, you succeeded. The company had 228 customers at the end of its fiscal first quarter (ending July 31), an increase of 27% year over year. Among them are stable giants such as coincidence (Shil 1.96%) and agencies within the United States government.

According to Forrester, C3.ai is a leader in enterprise AI, and given the extent to which the demand for AI can rise in the long-run, the company will likely be much larger a decade from now.

There are some things that cause C3.ai to slip

However, there are many reasons why potential investors are concerned about this business. First, its growth slows down significantly. In the first quarter of the fiscal year, revenue increased only 25% year over year, a slower rate than it’s seen over the previous few quarters. in addition to, Management anticipates slight incremental expansion for the remainder of the fiscal year. Its full-year guidance expects revenue to increase from just 1% to 7%, and its fiscal guidance for the second quarter of the fiscal year projects revenue growth of just 3% to 6%.

The company is also making a strange pivot: It’s moving away from its traditional subscription model to a consumption-based model. While there are advantages and disadvantages to each model, the timing of this is concerning. After all, deciding to run a subscription or consumption-based business is something a company determines early in its lifecycle, not as a $1.7 billion business — especially after running the subscription service for years.

The final concern is C3.ai’s lack of profitability. In its first fiscal year, it lost $71.9 million — more than it made in revenue. In addition, C3.ai had a file free cash flow Nearly $55 million, giving it a cash flow burn margin of 84%.

Management has indicated that it plans to cut expenses to get the company on its way to profitability, primarily by cutting costs that don’t directly impact revenue growth. But if the administration speaks volumes, the financiers do not support it. These problems are compounded as revenue slows and expenses continue to rise, and while the company is trying to take steps in the right direction, they may not be the right ones.

Would you buy C3.ai stock now?

With its shares dropping so much, C3.ai is now trading at a very low valuation – only 6 times sales. This is a historic low for the company and lower than other AI and data analytics stocks.

However, investors may be wise to stay away from C3.ai for now. It may be cheap to value, but that’s for a reason: The company is in a tough spot right now as adoption of its services is slowing and its expenses continue to rise. While C3.ai has a lucrative opportunity ahead of it, it is not taking advantage of it. Given the strange decision to change its pricing model, investors should also be concerned about management’s clear vision (or lack thereof) for the company.

While C3.ai certainly looks attractive in its current rating, It also faces an uncomfortable amount of uncertainty during this strategy shift. It would be wise to watch this stock from the sidelines.

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