Like every other publicly listed business, enterprise artificial intelligence company C3.ai (NYSE:AI) has room to improve. If we look closely, we can find some financial imperfections with C3.ai, but don’t lose faith in the company. As long as the demand for AI-related products continues to grow, investors should hang on to AI stock.
C3.ai CEO Tom Siebel once declared that the impact of AI “is not ephemeral.” AI is here to stay. So, is your portfolio properly positioned for the AI revolution that’s taking over the tech world? Adding a few C3.ai shares is a simple way to participate in the AI boom, but be sure to consider C3.ai’s challenges before hitting the “buy” button.
Profitability Remains Elusive for C3.ai
If you’re a stickler for profitability, then here’s some news you probably won’t like. Even though C3.ai’s revenue grew 18% year over year in fiscal 2024’s third quarter, the company still isn’t income-positive.
The following bullet points will show that, in some respects, C3.ai’s financials have gotten worse over time:
- First quarter of fiscal 2024: GAAP net loss of 56 cents per share; non-GAAP net loss of 9 cents per share; $809.6 million in cash, cash equivalents and investments
- Second quarter of fiscal 2024: GAAP net loss of 59 cents per share; non-GAAP net loss of 13 cents per share; $762.3 million in cash, cash equivalents and investments
- Third quarter of fiscal 2024: GAAP net loss of 60 cents per share; non-GAAP net loss of 13 cents per share; $723.3 million in cash, cash equivalents and investments
Prospective investors need to weigh these issues against C3.ai’s revenue growth. Going forward, it would benefit C3.ai’s bottom line if the company can reduce its expenses. At the same time, C3.ai should hopefully continue to show progress in customer engagement and revenue growth.
AI Adoption Will Drive C3.ai Stock Higher
If you’re concerned about C3.ai’s financial challenges, that’s understandable. It’s possible for AI stock to make a 2x, 3x or greater move based on accelerating industrywide adoption.
As the old saying goes, a rising tide lifts all boats. In 2024, AI technology is definitely a rising tide. You’d be hard-pressed to find a tech-business conference-call transcript that doesn’t refer to AI at least once.
Businesses are scrambling to add AI functionalities into their products and services, and C3.ai can certainly facilitate this transition. Truly, C3.ai has an opportunity to take a slice of a massive AI-revenue pie in the coming years.
How massive is that pie? UBS researchers predict that the value of the AI hardware and services market will reach an astonishing $90 billion by 2025. For comparison, that market was worth approximately $36 billion in 2020.
The UBS researchers also forecast a 20% compound annual growth rate (CAGR) for the AI hardware and services market through 2025. This bodes well for a range of AI-adjacent companies, but the most direct beneficiaries should be pure AI businesses like C3.ai.
AI Stock: $50 Is Both Possible and Probable
Like Siebel said, the impact of AI isn’t “ephemeral.” Look for more businesses to embrace AI technology. Look for C3.ai to benefit as the market for AI hardware and services continues to expand.
Investors should monitor C3.ai’s financials and expect some share-price volatility. The best strategy isn’t to mortgage your house to buy C3.ai shares.
Instead, consider taking a small portfolio position in AI stock with a $50 price target. That’s quite reasonable, given the anticipated growth of the AI hardware and services market. After $50 is achieved, a 3x move or even more will be within reach, so stay invested in C3.ai.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
