C3.ai (NYSE: AI) has been garnering attention lately, with many investors wondering if the company could emerge as a leader in the AI field, if it is simply a sleeping giant waiting to be awakened, or if it has come too far too soon and is due for a pullback. Its RSI is now hitting 73.
To assess its potential, let's examine C3.ai's recent performance, earnings results, and current sentiment around the stock.
Overview of C3.ai
C3.ai is a prominent enterprise software company that provides artificial intelligence (AI) solutions to optimize operations and improve organizational decision-making. The company offers software-as-a-service (SaaS) applications across various industries, including manufacturing, healthcare, energy, and financial services.
These applications harness the power of AI and machine learning to drive digital transformation. Over the years, C3.ai has evolved from an energy management company to an Internet-of-Things (IoT) business, and now, it is focused on AI applications. Management believes its latest shift into generative AI is revolutionary.
The company's pre-built AI models address everyday situations in many industries, making them an attractive option for businesses that don't want to invest in developing custom models. One of C3.ai's significant emerging clients is the U.S. government, which accounted for nearly half of the company's bookings in the fourth quarter of fiscal 2024, ending April 30.
Recent Surge in C3.ai's Stock Performance
C3.ai's stock has seen a significant uptick recently. Over the past month, it surged by 31%, bringing its year-to-date performance close to a 10% gain. This surge can be attributed to its strong earnings results for the fourth quarter of fiscal 2024. Historically, C3.ai struggled to demonstrate substantial revenue growth despite its promising AI solutions. However, its latest earnings report impressed investors and led to a notable increase in its share price.
On May 29, C3.ai released its fiscal 2024 year-end numbers. During the fourth quarter, the company reported a 20% year-over-year increase in revenue, reaching $86.6 million. This was also a 10% improvement from fiscal Q3's revenue of $78.4 million. For fiscal 2025, C3.ai projects revenue between $370 million and $395 million, representing a 23% increase at the midpoint, indicating a further acceleration in top-line growth.
Despite the promising revenue projections, there are concerns regarding C3.ai's profitability. Management anticipates an adjusted operating loss of between $95 million and $125 million for fiscal 2025, deeper than the $94.9 million loss in fiscal 2024 and the $68.1 million in fiscal 2023. The company is one of the most unprofitable in the software industry, with a high cost of revenue and significant operating expenses leading to substantial losses. In Q1, despite nearly $87 million in revenue, the company incurred $35 million in the cost of revenue and $134 million in operating expenses, resulting in a 95% operating loss margin.
Current Analyst Ratings and Price Target for C3.ai
Analyst sentiment towards C3.ai is beginning to shift positively. The stock holds a "hold" rating based on twelve analyst ratings, with a consensus price target of $31.30, suggesting further upside potential. This is a notable improvement from a year ago when the stock had a "reduce" rating and a consensus price target predicting considerable downside.
However, skepticism remains high. C3.ai is one of the most shorted stocks in the market, with a short interest of 28.25%, up 3.23% from the previous month. This indicates that many are still betting against the company, reflecting ongoing concerns about its profitability, valuation, and long-term viability.
C3.ai's Significant Potential with Notable Risks
C3.ai has shown significant promise with its recent performance and earnings growth, positioning itself as a legitimate growth play within the AI industry. However, the company's substantial losses and high short interest suggest that investors should remain cautious. As the company continues to grow and evolve, its ability to achieve profitability will be crucial in determining whether it can transition from a potential sleeping giant to a dominant force in the AI sector.
