C3.AI Generates Big Growth, But Isn’t a Buy Yet

Stock Market
  • C3.ai (AI) made the Americas’ Fastest Growing Companies list for the second consecutive year.
  • AI stock is a growing name in a growing sector.
  • But negative earnings and a volatile macro environment mean staying on the sidelines makes sense right now.
Source: Tada Images / Shutterstock.com

On April 14 The Financial Times announced that C3.ai (NYSE:AI) was again included in its list of Americas’ Fastest Growing Companies 2022. This is the second consecutive year that the company has been added to the distinguished list. This ranking looks at the ability of American companies to grow during the 2020 Covid pandemic. The ranking is based on revenue growth in the years 2017 through 2020; The Financial Times and Statista present the rankings.

It is admirable for companies to grow during the pandemic years, and an achievement to be on this high-growth list. The question is: should investors buy C3.AI now? The stock had a 52-week high of $76.85 and is now under $19. Is it a stock to buy for growth?

AI C3.ai $18.31

C3.ai Is Building for the Future

As described by Morningstar.com, C3.ai is “an enterprise artificial intelligence company,” and as such, it makes software that helps its customers develop and deploy Enterprise AI applications across any infrastructure. C3.ai has three divisions that offer solutions. For example, its C3.ai Ex Machina division supplies analytics that help companies use data science to make their common business decisions.

C3.AI has reported that over the last 40 years, the worldwide information technology industry has boomed to more than $2 trillion. Over this time, the industry has transitioned from mainframe computing to personal computing, and on to the internet and handheld computing.

The software industry has transitioned along with the computing hardware. And the internet and the iPhone changed everything, making it necessary to deliver software compatible to those developments. C3.ai writes that the next major transition for the IT industry has begun. And that AI, among other processes, is driving that transformation globally. The need is for a new software technology stack. C3.ai products and services addresses this need.

The company also writes that innovation in the pace of software and algorithm is blinding. And that the current techniques have a short shelf life; that they will be obsolete in only five or 10 years.

Over the last 10 years it has invested more than $800 million in developing and improving its C3.ai Application Platform. The company has refined, tested, and proven itself in industries and environments such as electric utilities, manufacturing, oil and gas, and defense, the platform capabilities. It has used datasets from thousands of different source systems, massive volumes of high-frequency time series data from millions of devices, and hundreds of thousands of machine learning models.

The company also recently hired Major General Martin F. Klein as its president for defense and intelligence, bringing expertise to the position.

Is AI Stock a Buy?

So, is C3.ai a stock to buy for investors? For that, let’s look at earnings. Zacks Investment Research reports consensus earnings per share for the fourth quarter of 2022 is -29 cents. Earnings per share for the same quarter last year was -24 cents.

TipRanks.com, based on eight analysts’ ratings, reports their EPS forecast for Q4 2022 at -58 cents.

When considering whether or not to buy C3.AI — or any other stock — earnings growth is really important. That’s especially so in this market environment, facing a war that could change day to day. The market environment seems risk-off at the present, although investors are still looking for growth and will buy stocks with growing earnings.

In the recent market past, before the Russian attack on Ukraine, earnings were not as important as they are now. High-growth companies could take some time to get their earnings growth on track. But it’s not the case anymore. And C3.AI does not show earnings growth for the next quarter.

Also, Yahoo.com shows that of 10 reporting analysts, all show a loss for the company’s earnings this year (2022) and next year (2023). A bright spot is that those 10 analysts show an estimated sales growth in 2022 of 37.4% and in 2023 an estimated growth of 32.6%. The company has been consistently growing its revenues, so seeing that trend continue is a mark in its favor.

Still, for now, C3.AI can be watched but either the market atmosphere has to change, or earnings have to pick up for it to be a stock to buy.

On the date of publication, Max Isaacman 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.

Max Isaacman is an Investment Advisor Representative in San Francisco. His investment books were published by McGraw-Hill and Financial Times Press, including the first book on ETFs, How to be an Index Investor (McGraw-Hill, 2000). He wrote for the Emmy award-winning Website Minyanville.com. His email is exch13@aol.com

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