C3.ai’s Billion Dollar Balance Sheet Gives Investors Downside Protection

AI stock - C3.ai’s Billion Dollar Balance Sheet Gives Investors Downside Protection

Source: Piotr Swat / Shutterstock.com

C3.ai (NYSE:AI) is a software company primarily focused on the commercialization of artificial intelligence (AI)-related services. Like many software companies, C3.ai enjoyed a tremendous reception following its initial public offering (IPO) with the stock hitting $160 at one point. That valuation never made much sense, however. And, subsequently, the stock has dropped more than 85% from its peak. On the face of it, C3.ai looks like another hopes and dreams stock that crashed once investors demanded actual profits and cash flows from their companies.

Before casting C3.ai aside along with the rest of the unprofitable speculative companies, however, consider the following. For one thing, C3.ai has a massive cash balance. As of its last quarterly filing, it had $1.1 billion of cash, cash equivalents, and investments on its balance sheet. This makes up roughly half of its overall market capitalization. This accomplishes two major things for C3.ai. For one, the company has the runway to operate for many years in its current state without running low on resources. This should insure that shareholders don’t face too much dilution or any financial strain over the intermediate-term. In fact, the opposite is occurring; C3.ai has been repurchasing stock now that shares are this low.

For another thing, it puts a floor on valuation. With the company having almost $9 per share in cash plus investments on top of that, it realistically limits how much further the stock could decline. Sure, anything is possible. But it’s hard to imagine a company with 20%+ top-line revenue growth in the field of AI selling at a discount to its supply of cash on hand. It’s relatively rare to get true deep value stocks in the technology space, but AI stock is fast approaching that point. C3.ai is now putting that cash to good use with the stock buyback, which should help reverse the negative momentum we’ve seen in the stock in recent months.

There’s plenty of reasons to be bullish on C3.ai’s technology and long-term prospects. The company is strong in AI for the military and energy services sectors — both of which are industries in demand right now. C3.ai just inked a half a billion dollar contract with the Department of Defense, reinforcing that point. The company’s CEO, Tom Siebel, is a noted tech industry legend. He founded one of the first successful customer relationship management (CRM) software companies, and later sold it to Oracle (NASDAQ:ORCL) for billions. And the list of positives goes on.

Clearly, however, the market isn’t too interested in reasons to be bullish on AI stock right now. Even that huge new Department of Defense contract barely caused the stock to pop. It’s simply a dismal time, as far as sentiment goes, in the aggressive growth sector right now. Even if sentiment remains terrible, however, the company’s cash balance should keep shares from falling too much farther. In a market where tech stocks seem like falling knives, that edge should help AI stock stand out in coming months.

On the date of publication, Ian Bezek held a long position in AI stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2022/04/ai-stock-billion-dollar-balance-sheet-gives-investors-downside-protection/.

©2022 InvestorPlace Media, LLC