Editor’s Note: This article is a part of our “If You Only Buy One Stock” series where we look at 2021’s most popular investing trends and have our top financial journalists make their very best pick. Click here to see more names for your must-buy list.
Artificial intelligence is the future. I’m not saying this in the Minority Report kind of way. Rather, I believe those investing in AI stocks today do have a real shot at outperforming the market long-term.
Computers are smarter than us. Plain and simple. Yes, humans are required to power the algorithms behind these AI super-platforms. However, the reality is we’re moving toward an automated world. There’s some pretty interesting trends right now underway, and I’d encourage investors to go with the flow on this one.
Now, aside from robots stealing everyone’s jobs and Big Brother watching our every move, AI technology is re-shaping how we live, work and are entertained. Anyone who has seen an eerily-accurate advertisement on Google (NASDAQ:GOOG, NASDAQ:GOOGL) or noticed how impressive the recommendations are on Netflix (NASDAQ:NFLX) knows what I mean.
Now, it’s critical to note that Google and Netflix have developed their business models based on machine learning and AI in-house. They’re among the largest technology firms out there, with incredible manpower and resources to do so.
Smaller companies (and they don’t necessarily have to be that small) may not have this luxury. The investment in developing a custom AI solution can be massive. And many companies simply don’t want to flip the bill for doing everything from scratch.
Enter: C3.ai (NYSE:AI).
C3.ai has found a very intriguing niche in providing AI models at scale for such companies. These are intended to be used as powerful prediction tools, driving incredible productivity growth for their clients.
Here’s more on why I’m bullish on C3.ai as the AI stock of the future.
C3.ai Is the “Every Man’s” AI Stock
Bringing the AI revolution to the masses is a tall task. However, C3.ai seems to be up to the challenge.
The company’s products help enterprise businesses get the AI solutions they need without the capital investment. In return, C3.ai picks up a nice revenue stream with some pretty stable (and growing) cash flows for investors.
By targeting a very wide audience, C3.ai’s value proposition is certainly interesting for long-term investors. Better yet, this stock has been on a steady decline of late. Investors are able to pick up AI stock at roughly a 60% discount from its peak.
However, this stock has been discounted for a reason. Investors appear to be concerned with the company’s relatively high valuation multiple. Today, AI stock is trading near 40-times sales, a level reserved for only the highest-growth stocks in the market.
Accordingly, while AI stock has grown its sales (primarily organically) at a 19% year-over-year clip, that may not be fast enough for investors right now. There’s certainly potential for AI stock to accelerate its growth over time. And in such a scenario, I could see this stock taking off.
However, the recent price action with AI stock suggests investors may be waiting on the sidelines for now to see how this company performs in the coming quarters.
The artificial intelligence space is one I personally find intriguing. Indeed, there’s a ton of long-term growth potential underpinning companies like C3.ai right now.
Unfortunately for value investors, a lot of this growth is priced in at the moment. Additionally, given where valuations are today, I understand the skepticism of jumping into such perfectly-priced names.
However, for those looking for a company with the potential to dominate its sector, AI stock is certainly worth a look. I’m on the sidelines with this stock, mainly due to its valuation right now. However, the growth thesis with C3.ai is one that could result in the company growing its way into its current valuation. It’s certainly possible.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.