Having declined 41% from its 52-week peak, is a turnaround possible for C3.ai stock?
So far, C3.ai stock has not met the high expectations set for it. Amid last year’s heightened enthusiasm for artificial intelligence (AI) stocks, C3.ai emerged as a top contender for success. Indeed, 2023 proved beneficial for this tech stock, which saw a 157% increase. However, the momentum has significantly decelerated in recent months, primarily due to the company’s less-than-stellar financial performance.
Currently, C3.ai’s shares are significantly below their 52-week high of $48.87, having dropped 41% since reaching that zenith last summer. The question arises: Can the company reverse its fortunes, or is the stock on a downward trajectory?
C3.ai must boost its growth rate
Last year’s optimism regarding C3.ai was fueled by its role in delivering AI solutions across various sectors, with an anticipated growth spurt driven by the growing popularity of ChatGPT and other AI models.
Although C3.ai has reported some revenue growth, it hasn’t reached the levels many investors anticipated. For the quarter ending October 31, 2023, the company reported revenues of $73.2 million, a 17% increase year over year. This was only a slight improvement from the $72.4 million reported in the prior quarter.
For the forthcoming quarter, the company forecasts revenues between $74 million and $78 million. This projection suggests a modest quarter-over-quarter growth at the low end and, at best, a 6.5% sequential increase.
However, there’s potential for further revenue growth. In the latest quarter, C3.ai finalized 62 agreements, including 36 pilot projects with some sizable clients, an increase from 24 pilots in the preceding period. These pilot projects serve as initial engagements with C3.ai’s platform, aiding businesses in selecting, configuring, and deploying the applications, potentially laying the groundwork for future expansions.
C3.ai’s cash burn is concerning
Apart from sluggish growth, the company’s cash flow issues likely worry investors. Over the past six months, C3.ai has expended $44.7 million in cash on operational activities, a figure that would have been higher without accounting for over $104 million in stock-based compensation expenses. As the company continues investing in AI initiatives, its cash requirements may increase.
As of the last quarter’s end, C3.ai reported a cash reserve of $161.6 million. If the company continues to deplete its funds while seeking new deals, it may need to issue more shares, diluting existing shareholders’ stakes and exerting further downward pressure on the stock.
Is C3.ai stock overpriced?
According to Wall Street analysts, the consensus price target for C3.ai is $28.33, suggesting the stock is currently priced near its potential peak. Given the company’s $262.3 million losses over the past 12 months and its valuation at 12 times trailing revenue, coupled with limited growth prospects, it’s understandable why enthusiasm for C3.ai has waned, making the stock appear costly to many investors and analysts.
Is it wise to invest in C3.ai stock now?
C3.ai needs to demonstrate its viability and potential to stand alongside other promising AI stocks. To date, it has not accomplished this. However, deals may take time to impact revenue growth significantly.
Investors are advised to await clearer signs of business improvement following the pilot projects before considering an investment in the stock. Currently, C3.ai represents a slow-growing tech company with significant cash flow issues. Until it alters this narrative, investors might find better opportunities in other, more established AI stocks.
