Opinions are definitely mixed on Wall Street when it comes to enterprise artificial intelligence company C3.ai (NYSE:AI). Sure, AI stock will give you direct exposure to the fast-growing machine-learning industry.
On the other hand, there are issues with C3.ai that eager traders should consider before over-investing in the company.
Earlier this summer, traders were furiously bidding up the C3.ai share price. Yet, there were some skeptical voices on Wall Street. For instance, Canaccord Genuity analyst Kingsley Crane complained, “There’s little fundamental reason to explain the recent rally.”
I’ll admit, C3.ai has been a consistently unprofitable company. Still, there are bullish and bearish factors to consider with C3.ai. So, let’s see what a prominent C3.ai bull has to say before moving on to the bear case.
Tap Into the ‘AI Gold Rush’ With AI Stock
Some commentators weren’t super impressed with C3.ai’s recent investor day presentation.
Deutsche Bank’s Brad Zelnick, in particular, felt that C3.ai’s presentation “left a lot to be desired as there were no details on financials, limited operational updates and investors for the most part didn’t attend.”
However, Wedbush’s Daniel Ives was more upbeat about C3.ai. He sees an “$800 billion opportunity over the next decade” with AI. Furthermore, Ives considers C3.ai to be “at the center of the AI gold rush taking place.”
In defense of this claim, Ives cited C3.ai’s “strong product portfolio and expanding partner ecosystem,” which will allow the company to “take market share in this accelerating market.”
On top of all that, Ives pointed to C3.ai’s “increased sales activity, [a] growing pipeline [and] encouraging business prospects.”
Those are fair points, but Ives is an outlier with his $50 price target on AI stock. Overall, analysts on Wall Street only expect the stock to reach $26.16.
A Question of Honesty With C3.ai
I’ve already mentioned Crane’s concern about C3.ai’s fundamentals versus the company’s share price. Plus, I’ve covered Zelnick’s complaint about C3.ai’s lack of transparency during the company’s investor-day presentation.
To that, I’ll add the commentary of Spruce Point Capital founder Ben Axler, who sees “a lot of puffery going on” with C3.ai. Axler seemed to question C3.ai’s transparency and/or veracity in certain respects.
“I think there’s a lot of exaggeration about… the addressable market, about how much money’s been, invested, and, ultimately, about the prospects for the business,” Axler claimed. Yet, that wasn’t his only concern.
In addition, Axler pointed to C3.ai’s rate of cash burn. C3.ai, Axler claimed, “has done nothing but burn through $150 million, almost $200 million of cash since we first outlined our concerns about the company.”
Axler expressed concerns about C3.ai’s share count. The company, Axler alleges, “is highly dependent on issuing its stock to employees.” Additionally, C3.ai’s “share counts continue to balloon,” and with that in mind, Axler raised the alarming topic of “dilution.”
Verdict on AI Stock: Take It Slow and Steady
Overall, I like C3.ai as a company and feel that the machine-learning industry is set to expand in the coming years.
Still, I concur with the assessment of Principal Asset Management Chief Global Strategist Seema Shah, who feels that “there’s maybe a little bit of froth” and expects that “you could see a little bit of a pullback” in stocks related to AI.
The point is that there’s validity to both the bull and bear cases pertaining to C3.ai. My verdict is that AI stock should grow over the long term, but it’s likely to cool off in the short term. Therefore, a small share position in C3.ai is appropriate and there’s no need to go all-in right now.
On the date of publication, David Moadel did not have (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.
