C3.ai, an enterprise AI software company, is facing troubling problems that hint at an unpromising future for its stock. While many investors have been drawn to AI stocks, not every company in this sector is poised for success. Here’s why C3.ai should be avoided as an investment.
One of the main reasons to be cautious about C3.ai is its revenue dependence on specific companies. Currently, the company generates about one-third of its revenue from Baker Hughes. However, this agreement is set to expire in fiscal 2025, and there is uncertainty about whether it will be renewed. This uncertainty poses a significant risk to C3.ai’s revenue base.
Another cause for concern is the company’s frequent name changes. Since its founding in 2009, C3.ai has gone through multiple rebranding efforts, raising questions about its commitment to the technology. The company originally started as C3 LLC, then became C3 Energy, and later changed its name to C3 IoT. In 2019, it rebranded once again as C3.ai before launching its IPO. These frequent changes raise doubts about the company’s vision and stability.
Financially, C3.ai’s path to profitability is also uncertain. While its revenue in the first two quarters of fiscal 2024 showed a modest increase of about 14% compared to the previous year, a near doubling of subscription costs wiped out the benefits. The company reported a net loss of $134 million in the first half of 2024, a slight improvement from the previous year. Although C3.ai has enough cash to sustain its operations for now, its lack of significant improvement in net losses raises doubts about its ability to achieve profitability in the future.
Furthermore, C3.ai’s stock performance has been lackluster. While it experienced a significant rise of around 160% over the past year, it also faced a decline of nearly 30% in the previous six months. Additionally, the stock’s price-to-sales ratio of over 11 indicates that it is relatively expensive. Without a substantial improvement in its business, the stock’s upside potential may be limited.
In conclusion, C3.ai may appear promising at first glance but a deeper analysis reveals troubling problems. Its dependence on specific companies for revenue, frequent name changes, uncertain path to profitability, and recent stock performance all raise concerns. Investors may want to consider more profitable companies in the AI sector instead of investing in C3.ai.
