shares of C3.ai (AI 0.43%) and Nvidia (NVDA 0.95%) Both companies’ growth has set the stock market on fire in 2023, thanks to growing interest in artificial intelligence (AI), which could greatly accelerate their growth.
C3.ai’s stock has soared nearly 235% so far this year, while Nvidia has posted a staggering 186% gain. But a closer look at these companies reveals that even though AI has proven to be a common catalyst for them, the technology drives their business in many ways. For example, C3.ai is a pure AI enterprise software provider. Nvidia, on the other hand, is primarily a hardware-focused company.
So if you had to choose one of these two AI stocks for your portfolio, which one?
For C3.ai
C3.ai is an enterprise AI software provider. According to market research firm IDC, the AI-focused software market is expected to grow 31% annually through 2026, reaching nearly $193 billion in revenue, making the company a fast-growing niche. will enter into
However, C3.ai’s decision to change its business model means it cannot capitalize on this hot market at this time. The company’s revenue for his recently ended fiscal year 2023 (ending April 30) was up just 6% year-on-year to $267 million. This is a significant slowdown compared to the 38% growth in sales in FY2022.
In short, C3.ai’s growth has slowed significantly, so C3.ai’s stock price surge in 2023 is purely driven by the company’s potential in the enterprise AI software market. However, it’s worth noting that C3.ai’s slowdown is temporary as it is in the process of transitioning its business model from a subscription-driven model to a consumption-based model.
The pay-as-you-go model means that you only pay for the solution that C3.ai’s customers use. A subscription model would have bound these customers to a contract for a period of time, generating revenue for C3.ai, regardless of their use of the company’s products. So a subscription model would have provided better visibility to C3.ai’s revenue.
But the consumption model also has its own advantages. This eliminates the need for lengthy negotiations and allows the company to quickly secure an agreement with its customers. This explains why C3.ai signed his 43 contracts in the fourth quarter of his fiscal year 2023 (ending April 30, 2023), marking a massive 59% year-on-year increase. doing. In addition, the company’s eligible sales pipeline has also increased by over 100% in the last 12 months.
Given that C3.ai is currently in the early stages of transitioning its business model and is expected to be completed in a year’s time, the company’s growth could accelerate from FY2025. C3.ai has a revenue outlook of $295 million. Hitting his $320 million mark in fiscal 2024 would represent an 11% to 20% year-over-year increase, suggesting the company is likely to gain some momentum. The analyst expects C3.ai to grow further in the coming years.
YCharts AI Revenue Forecast for Current Year Data
Therefore, C3.ai could be a good option for investors looking to tap into the software side of AI.
For Nvidia
Unlike C3.ai, Nvidia is already on an amazing growth trajectory. The company’s hardware is essential for training and inferring AI models. The immense parallel computing power of Nvidia’s graphics cards allows the company to train his AI models quickly. This explains why people are queuing to buy Nvidia graphics cards today.
More importantly, that demand is about to be reflected in Nvidia’s impressive revenue and profit growth. Revenue this quarter is expected to reach $11 billion, up 64% from the same period last year, and analysts expect earnings to quadruple to $2.05 a share. Nvidia is expected to maintain this outstanding level of growth for the rest of the year and beyond. That’s not surprising for several reasons.
First, demand for graphics cards is skyrocketing thanks to AI applications. For example, the popular chatbot ChatGPT was reportedly trained using over 30,000 of his Nvidia graphics processing units (GPUs).
With demand for generative AI software such as chatbots expected to grow tenfold over the next five years, the need for GPUs capable of training AI models should remain strong. This explains why the AI chip market is expected to record a compound annual growth rate of 40% through the end of the 20s, with annual revenue approaching his $230 billion.
Second, Nvidia is in pole position to capitalize on this huge opportunity. The company already dominates a sizeable portion of the AI chip market, with analysts estimating its share between 80% and 95%. In addition, we are focused on maintaining a solid share with the introduction of server processors that create entirely new revenue opportunities.
Additionally, Nvidia is focusing on the software side of the AI market with its latest partnership. The company’s diversification allows it to open up new dimensions beyond just AI hardware that could drive long-term growth. In this respect he Nvidia and C3.ai are even more different. Because the latter is a software-based AI play, while the former can operate in both realms.
verdict
While Nvidia has already tapped into the AI opportunity, it’s clear that C3.ai has yet to start tapping into it. But now buying Nvidia stock is an expensive move. The stock is trading at 41x. This is much higher than C3.ai’s price-to-sales ratio of 15. Of course, Nvidia’s high ratings seem justified considering its rapid growth, but the long-term potential of his C3.ai in the enterprise AI software market also looks promising. .
As such, investors looking for slightly cheaper AI stocks may lean towards C3.ai, but will have to wait for the company’s growth to accelerate. However, companies willing to pay a premium can take advantage of his Nvidia’s dominant position in the AI hardware space and the company’s move to the software side of this technology.
