C3.ai Will Be a Lifetime Buy-and-Hold If It Achieves Profitability
Machine learning is pervasive in modern business. To that end, enterprise artificial intelligence (AI) firm C3.ai (NYSE:AI) offers AI-focused software-as-a-service (SaaS) applications internationally. For traders seeking exposure to machine learning, AI stock is certainly a pure-play allocation worth considering.
As we’ll see, though, long-term investors haven’t had much luck with C3.ai so far. Sure, there was enthusiasm when the company went public, but the hype soon faded and some shareholders were left holding the bag.
This might be frustrating, as C3.ai has a number of large clients. In fact, the company recently entered into a contract that’s worth hundreds of millions of dollars.
Yet, just because a company has robust revenues doesn’t mean it’s profitable. As such, value hunters shouldn’t go bottom fishing just yet. Be sure to read the fiscal stats and fine print first before taking action.
A Closer Look at AI Stock
Going back to the beginning, C3.ai priced its initial public offering (IPO) at $42 per share in December 2020. AI stock opened for trading at $100 on Dec. 9 and went as high as $130 the following day.
That rally continued for just a little while longer. On Dec. 23, 2020, the AI share price soared to a 52-week high of $183.90.
After that, the price action started to get nasty, however. AI stock fell to $50 in the summer of 2021 and even touched below $30 in early 2022. Today, the stock trades around the $27 mark.
It’s difficult to identify meaningful support levels when a stock just keeps falling. However, if the C3.ai share price gets low enough — say, into the teens — it will be hard to resist taking a long position.
Before you go on a bottom-fishing expedition, though, it’s important to check on the latest developments with this company. Specifically, one big contract could provide a major revenue source moving forward.
A New Agreement
When it comes to getting big clients, there really aren’t any bigger ones than the government. That’s terrific news for C3.ai. Why? Because the company recently secured a contract with the U.S. Department of Defense (DoD).
More precisely, this deal is a five-year Production-Other Transaction Agreement with the DoD, allowing for an accelerated timeline to acquire C3.ai’s suite of enterprise AI products. Furthermore, the agreement allows any DoD agency to acquire C3.ai products and services for modeling and simulation.
This agreement, according to the company, accelerates the adoption of C3.ai’s defense and intelligence applications, which are currently in use at the U.S. Air Force and Space Command, among others. CEO Thomas Siebel commented the following:
“The new Agreement has a DoD-wide scope, accelerating research projects in simulation and modelling and production deployments for operations and sustainment.”
All told, the deal is valued at $500 million.
Good News, Bad News
In light of this new government contract, it might seem like C3.ai is firing on all cylinders. There’s no denying that the company has generated strong revenue.
As evidence of this we can observe that, during the fiscal second quarter ended Oct. 31, 2021, C3.ai took in total revenue of $58.3 million. That figure denotes an increase of 41% on a year-over-year (YOY) basis. Furthermore, if we drill down to C3.ai’s quarterly subscription revenue — which is the company’s lifeblood, really — C3.ai generated $47.4 million. That marked a YOY increase of 32%.
Let’s not get too excited, though. Turning to the bottom-line results, the company also incurred a net earnings loss of more than $56.7 million. That’s much worse than the $14.9 million loss reported for the prior-year quarter.
Moreover, during the six months ended Oct. 31, 2021, C3.ai sustained a huge net earnings loss of $94.2 million. In the equivalent prior-year period, the loss was $14.8 million. That’s bad, sure, but not as bad as the more recent result.
The Bottom Line on AI Stock
It’s understandable if you want to invest in the future of machine learning. Plus, value seekers might view AI stock as an irresistible bargain.
However, you may want to wait and see whether AI stock goes even lower from here. After all, there don’t seem to be any reliable support levels.
Besides, while C3.ai is growing its revenue, profitability remains elusive. Therefore, a watch-and-wait strategy is appropriate for the time being.
On the date of publication, David Moadel 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.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
