C3.AI (NYSE:AI) stock had revenue of $72.4 million for the quarter ending in April. A year earlier, before the AI hullaballoo began, sales were $72.3 million. Losses have been averaging $60 million per quarter.
Almost as much money gets lost as comes in. It’s a poor man’s Palantir (NASDAQ:PLTR).
Investors are now paying $33 per share for AI stock, a market cap of $3.84 billion. It’s supposed to make sense because C3.AI has a visionary leader in Thomas Siebel, who founded the company soon after selling his Siebel Systems to Oracle (NASDAQ:ORCL).
A Closer Look at C3.AI
The price is supposed to make sense because C3.AI is selling “enterprise AI.” It uses data clients already have and builds models from it. These models can be queried in plain English, and output can be in forms that are understood even by a CEO. The result is fast monetization.
C3.AI brags it has customers throughout the military-industrial complex and in the fossil fuels space. It’s also working with some financial companies like Fidelity National Information Systems (NYSE:FIS).
The heart of its offer is an AI Studio, used to develop applications, sometimes without code. The idea is to build secure, high-value applications that bring the C-suite closer to operations, eventually in real time.
This is the holy grail of factory management – everything automated and controlled remotely, by fellows with compassion and vision.
Siebel’s personal fight against COVID-19, deploying corporate resources, shows both the promise and limits of this approach. The data sources weren’t up to the task. The results had limited application on the ground. Lessons were learned, but when politics gets in the way they might not be applied.
Why This Makes No Sense
Big enterprises are the first big users of any technology. But they’re not where the biggest opportunities eventually live.
Those hockey stick graphs being made by market researchers all assume a market that goes well beyond the enterprise. It starts with variational auto-encoders that look at the structure of data before it’s brought into a learning engine.
This means most of the important internal work in making AI useful to small companies and individuals hasn’t been done yet.
This realization has caused some investors to slow their roll into AI stocks. The fact of big markets beyond the enterprise means C3.AI’s very approach may miss the mark.
C3.AI stock is vulnerable to changing fashion because its value is based on hype, not numbers. The company claimed just 287 customers in April. This includes paid trials and one-time customers, as well as those buying subscriptions and paying for professional services.
The Machine Internet, software linked to sensors, controlling processes, giving management real-time control over factories, does not exist yet. These are early days.
The Bottom Line
C3.AI stock is a speculation.
The stock price is subject to the whims of traders. This makes it volatile. A 2021 hype cycle sent AI stock as high as $50. The latest explosion sent it as high as $45. On the other hand, you could have gotten this stock for $12 last December, and below $18 in April.
Before buying AI, you need to spend some time watching its charts. If you believe in it, take this negative story as a positive signal. You’re off 22% from the last high. Summer doldrums indicate we may have further to go. It can easily fall below June’s price of $32 before the next bounce.
If you want it, buy it low. Even if you like it, don’t chase it.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
