Yahoo Finance C3.ai Shares Up 14% in a Month: What's Next for AI Investors?
C3.ai AI shares have returned 14% in the past month, outperforming the Zacks IT Services industry’s decline of 4.1% and the broader Zacks Computer and Technology sector’s gain of 4.1%.
C3.ai is benefiting from an expanding clientele and growing adoption of its Enterprise AI software. In fiscal 2024, 88% of bookings were driven by AI application sales and 12% were driven by the C3 AI platform.
It is riding on an increasing booking diversity. Federal, Defense and Aerospace, Oil and Gas, State and Local Government, Manufacturing, and Energy and Utilities accounted for 49.5%, 15.2%, 10.8%, 6.7% and 6% of fiscal fourth-quarter 2024 bookings, respectively.
AI Share Performance
Image Source: Zacks Investment Research
Federal revenues doubled year over year in fiscal 2024. AI closed 65 Federal agreements, up 48% year over year.
Robust Portfolio, Strong Partner Base Drives AI’s Clientele
In fiscal 2024, AI signed 191 agreements, which jumped 52% year over year, with 123 pilots that surged 151% over fiscal 2023. The strong adoption rate can be attributed to its robust portfolio, strong demand for C3 Generative AI solutions and an expanding partner base that includes the likes of AWS, Google Cloud and Microsoft MSFT.
In fiscal 2024, C3.ai closed 115 agreements through its partner network, up 62% year over year, which includes 91 agreements with AWS, Google Cloud and Microsoft Azure.
AI Bookings
Image Source: C3.ai
C3 Generative AI is currently being used by manufacturing, industrial and military industries. It improves safety standards on production floors and equipment operations and analyzes technical information, contracts and financial data. C3 Generative AI’s availability on AWS and Google Cloud is driving adoption.
The strong portfolio is helping in the growing usage of AI solutions. Cargill has expanded from 13 to 18 plants in production in the past year. Baker Hughes sourcing optimization is currently deployed across 855 sites with 2000 users saving roughly $100 million a year. Moreover, C3 AI reliability is currently deployed at 12 plants at Petronas, monitoring 4,000 control valves and realizing $25 million a year of annual loss avoidance.
C3.ai’s AI-powered predictive maintenance solutions were selected by the likes of Dow DOW, Holcim, and Con Edison (one of the largest energy companies) in the fiscal fourth quarter.
Dow, one of the largest chemical manufacturers, enhanced its predictive maintenance capabilities with C3 AI. It installed C3 Generative AI on top of C3 AI Reliability to provide equipment operators with AI insights, improve alert responses and expedite the personnel onboarding process.
Holcim started with a C3 AI Reliability production pilot in May 2023 and currently has 31 facilities in production. Con Edison is using the C3 AI Platform to improve operational efficiency, public safety, billing performance, customer satisfaction and energy efficiency.
Higher Investments to Hurt AI Stock's Near-Term Prospects
Despite a strong portfolio and robust partner base, AI’s near-term results are expected to suffer from higher investments.
AI continues to expect near-term pressure on gross margin due to a higher mix of pilots which are much costlier to acquire at the initial phase of the customer lifecycle. Additional investments in sales force, research and development and marketing spending are expected to hurt operating margin.
The ongoing transition to a pay-as-you-go consumption model is resulting in smaller transactions of shorter terms, which will likely hurt revenue performance obligations despite an increase in revenues.
C3.ai expects first-quarter fiscal 2025 revenues between $84 million and $89 million. Non-GAAP loss from operations is expected between $22 million and $30 million. The Zacks Consensus Estimate for first-quarter 2025 revenues is currently pegged at $87.12 million, indicating growth of 42% over the figure reported in the year-ago quarter.
For fiscal 2025, AI expects revenues between $370 million and $395 million. Non-GAAP loss from operations is expected between $95 million and $125 million. The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $384.09 million, indicating 28.2% growth year over year.
The consensus mark for loss is pegged at 54 cents per share, which has widened 14 cents over the past 30 days.
Conclusion
Although C3.ai shares have shown momentum in recent times, we believe investors should wait for a better entry point. AI plans to invest aggressively to gain market share, which is expected to keep margins under pressure in the near term.
Moreover, C3.ai is trading at a premium with a forward 12-month Price/Sales of 8.43X compared with the Zacks IT-Services industry’s 7.09X, reflecting a stretched valuation.
C3.ai currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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