With the release of ChatGPT, artificial intelligence is once again an investment topic.One of the hottest AI stocks is definitely C3.ai (AI -1.80%)is a 14-year-old technology company that went public at $42 per share in late 2020.
The stock is trading at about half that amount today, despite having nearly doubled since the beginning of the year. C3.ai was hit by slowing revenue growth and widening losses, but surged this month after announcing the launch of a ChatGPT-like “generative AI” suite of products for enterprise search. Businesses will be able to quickly find, retrieve, and present data from across the enterprise.
Given all the interest in OpenAI’s chatbots, this is a timely announcement by C3.ai, who said the tech company plans to incorporate ChatGPT into future iterations of its product. But is that enough to justify investors putting money into stocks? Let’s take a closer look.
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technology chameleon
Artificial intelligence is certainly the buzzword of the day, but so was the Internet of Things and carbon footprint cap-and-trade before it. We pursued these two trends with equal momentum.
C3.ai was originally founded as C3 Energy and considered itself an “Energy and Emissions Management” business. Years later, the company sought a patent for “systems, methods, and devices for an enterprise IoT application development platform.”
Today, the company believes it is at the forefront of the generative AI movement. So we’re working on building artificial intelligence that can actually create new content, not just analyze existing data. CEO Tom Siebel says C3.ai’s new suite of products “fundamentally changes the human-computer interaction model for enterprise application software.”
There are good reasons to believe that C3.ai can take advantage of this opportunity. alphabet, Amazonand intelanother partner, microsoftrecently invested in OpenAI, which happens to be the owner of ChatGPT.
hype short story
C3.ai has reportedly spent 10 years and nearly $1 billion developing its business and is now ready to reap the rewards. But the company has changed its business model to one based on consumption rather than subscriptions, which could make a big shift in revenue.
It currently accounts for about 30% of sales from energy giants. baker fuseinitially acquired a minority stake of $69 million in C3.ai and brought the CEO to the board, but that partnership appears to be deteriorating.
Famous short seller Spruce Point Capital Management says C3.ai has significantly amended its contract with Baker Hughes, allowing more concessions each time. The energy company sold his 20% stake in C3.ai, and Baker Hughes CEO Lorenzo Simonelli will step down from his board at the end of 2021.
Spruce Point also questions the value and strength of C3.ai’s other partnerships, such as Microsoft and Amazon. Asking questions about cash flow and profit potential, in 2023 he could lose more than $100 million and has never had a profitable year.
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less than it looks
In an update to a previous report, Shortseller reiterated its bearish thesis, believing that C3.ai was simply opportunistic in the language it used in its product suite launch release. The company said it didn’t make a single mention of “generative AI” in any of its SEC filings, including its second-quarter earnings report issued in December.
Interviews with former sales and technology executives and employees also questioned the innovative nature of C3.ai’s patented AI. The technical publication ZDNet describes the AI as “a platform-as-a-service platform for the Internet of Things with fairly standard AI.” mixed. ”
Spruce Point is clearly financially interested in seeing C3.ai’s share price drop, but how important that progress is and how much the company expects to be by the end of 2024, as management expects. The question arises as to whether the company can turn profitable on an adjusted basis.
risky business
C3.ai is not alone. The entire artificial intelligence market is just beginning to have its influence. Some companies, such as Amazon and Microsoft, NVIDIA, and even some start-ups are making good progress, but an industry-wide shakeout is imminent. Especially when the competition is this high, C3.ai seems too risky to buy.
Losses are widening and operating margins are shrinking. Additionally, C3.ai is running out of cash and its biggest revenue contributor may be rethinking. Our contract with Baker Hughes expires in 2025 with no guarantee of renewal. The bearish case for C3.ai seems to outweigh its bullish potential and I would hesitate to be a buyer here.
Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has no positions in any of the mentioned stocks. The Motley Fool has positions in and endorses Alphabet, Amazon.com, Intel, Microsoft and NVIDIA. The Motley Fool recommends C3.ai to Intel’s Jan 2023 $57.50 long call, Intel’s Jan 2025 $45 long call, and Intel’s Jan 2025 $45 short call. We recommend a put. The Motley Fool’s U.S. headquarters has a disclosure policy.
