C3.ai is a popular AI investment, but investors need to know about the company first.
C3.ai (A.I. 0.72%) It was a fairly popular artificial intelligence (AI) stock in 2023, when the AI investment wave started. His two letters in the company's name and the ticker symbol clearly tell investors and customers what the company specializes in. Many people flocked to his C3.ai stock, although its popularity has waned as a result of the wave of AI investments (this is evidenced by the declining trade volume) .
I think investors need to exercise some caution regarding C3.ai. If I were a stock investor, I would be concerned about three things.
1. Artificial Intelligence is not C3.ai’s first industry
The most successful companies (and investments, for that matter) dominate niche industries and then expand into other areas.look like a giant apple, microsoftand Amazon. These three started out very specific, and then we added many more products and services to eventually become what we are today.
C3.ai takes the opposite approach, which doesn't bode well for me. When C3.ai was founded in 2009, it was known as C3. The company focused on energy management solutions, but changed its name to C3 Energy in 2013 to communicate its expansion into the energy grid. In 2016, the Internet of Things (IoT) was a huge investment topic, so we pivoted our business into a platform that leverages IoT devices to anticipate enterprise needs.
Then came the current version, C3.ai. The company changed its name because it wanted to let customers know that it was in the sensor business. I was involved in the AI software business that manages these IoT devices. Now, given the popularity of generative AI, the company is working to incorporate the technology into its product offerings.
C3.ai has successfully bounced around from one solution to another, but has yet to find an industry where it can fully thrive. C3.ai has been around for 15 years, but its trailing 12-month revenue was just shy of $300 million. Compare this to other software companies that were successful in their niche and then expanded into other segments. cloud strike (established in 2011) or snowflake (founded in 2012) each generated approximately $3 billion in trailing 12-month revenue. C3.ai still leaves a lot to be desired.
2. C3.ai is far from profitable
If your personal financial situation is similar to C3.ai, you're in a bad place. In the third quarter of fiscal 2024 (ending January 31), C3.ai generated his $78.4 million in revenue. But when expenses are added up, C3.ai's net loss is $72.6 million. This means C3.ai is spending nearly twice his income, which is a big red flag for investors.
It also shows no urgency to improve its financial position, as its profit margins have remained largely unchanged over the past few years.
AI Profit Margin (Quarterly) Data by YCharts
C3.ai has a big hole to dig out before it becomes profitable again. It may be possible eventually, but it will take several years.
3. C3.ai still relies heavily on one client for business
Finally, C3.ai has a significant concentration of revenue. At the end of fiscal year 2023, one customer accounted for his 35% of C3.ai's revenue. This customer is definitely baker fusea supplier of oil and gas products and services.
C3.ai has a long history with Baker Hughes that began in 2019, and management has been quite upfront about this focus. They have worked through the deal several times and currently have a contract that expires in June 2025, with the option to extend it for several more years.
Still, no matter how healthy your significant other is, it's always a concern. If oil prices fall significantly, Baker Hughes could struggle and hurt C3.ai. Furthermore, Baker Hughes may choose not to renew its contract next year, which would result in the loss of a significant portion of C3.ai's revenue.
C3.ai may have a solid product, but I'm curious about its history and finances. Moreover, the greater the dependence on a single customer, the more likely the entire investment thesis will fall apart. C3.ai may be a successful investment or stock, but there are too many other investment opportunities to take a risk on C3.ai.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Keithen Drury has positions at Amazon, CrowdStrike, and Snowflake. The Motley Fool has positions in and recommends Amazon, Apple, CrowdStrike, Microsoft, and Snowflake. The Motley Fool endorses his C3.ai and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.