2020 was a huge year for SPAC offerings, while a few well-known IPOs came public as well. When C3.ai (NYSE:AI) went public in December, it did so as a few other larger and more well-known companies made their debut. That didn’t stop AI stock, though.
While C3.ai didn’t receive the same kind of attention, its stock still did well. Shares were priced at $42 per share, but opened at $100. Secretly, I was hoping this name would have gone through a quieter debut.
Even though I still feel like C3.ai was an overlooked new issue due to some of the larger IPOs at the time, this one has still done really well.
Breaking Down AI Stock
So what exactly does the company do? C3.ai caters to a number of different industries, ranging from banking, healthcare, retail, energy and utilities, among others.
I really fell in love with this company several years ago. Founded by Tom Siebel in 2009 after selling Siebel Systems in 2006 for almost $6 billion, he saw an opportunity to leverage artificial intelligence (AI) and big data.
At the time when I became aware of the company in its earlier years, it was catering to the energy space, helping deliver efficiencies and cost savings. Fast forward to 2021 and Siebel, who’s still the CEO — I love founder-led companies — and it’s clear that the rest of the market has picked up on this whole AI thing, right?
Furthermore, C3.ai doesn’t just provide a few improvements here and there these days, it offers an entire suite of products. From the company: “The C3 AI Suite supports the value chain in any industry with prebuilt, configurable, high-value AI applications for predictive maintenance, fraud detection, sensor network health, supply network optimization, energy management, anti-money laundering, and customer engagement.”
That first line is so important in terms of generating strong recurring revenue, which is where the stock’s premium comes into play when we’re dealing with tech stocks. It “supports the value chain in any industry.” That’s going to make C3.ai a mainstay in the tech field and in all honesty, I wouldn’t be surprised if it’s acquired some day.
There Is a Hurdle, Though
AI stock may have a great business with a long runway, but Wall Street isn’t fooled that easily.
Like others, the company’s IPO pricing climbed several times and even though it opened at $100, it has kept on going. AI stock sports a 52-week high of $183.90. In the $130s now, shares are down about 25% from the highs. So there is an opportunity here for bulls that have a long-term time horizon.
Analysts expect roughly 33% revenue growth this year and an acceleration up to 35.3% next year. At its current price, that leaves shares trading at more than 52 times forward revenue.
That’s expensive and there’s no other way to put it.
The company’s not profitable yet, but that’s okay. We don’t need our early tech stars to be profit machines. They need to go out and grow first, then focus on the bottom line. That’s exactly what C3.ai is doing.
I really like this company for the long term. It offers a great product, with its suite of solutions addressing a number of real-world problems for companies. In its simplest form, why wouldn’t a company pay $5 to C3.ai if it would save them $10?
They would and that’s why AI stock should be a long-term winner.
Bottom Line on C3.ai
The main risk with AI stock is the main risk that all recent IPOs face: A big correction.
The valuation is high and when the sellers finally step in, a name like this may not be able to hold up in the short term. Additionally, as more shares of AI stock become available for trading (from lock-up expirations, secondary offerings, etc.), the share price may struggle to absorb the extra supply.
If you are a long-term investor, do not fret the short-term price fluctuations. Obviously we all want to hit the low, but it’s unlikely that we will.
While we may have some volatility throughout 2021, we’re likely going to have a good year. That’s as the Federal Reserve remains supportive and as the economy is set for a strong recovery.
Any dips that materialize in the market could create an opportunity in AI stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.