The Bull Case for AI Stock: Why C3.ai May Have More Room to Run

C3.ai (NYSE:AI) stock is a complex play for long-term investors to consider. As one might guess given the company’s ticker, C3.ai is a key player many investors look at in the artificial intelligence space.

The company uses an AI-based software platform which allows users to develop and design enterprise AI solutions. Sounds like a massive potential market, and it is.

It should be no surprise to many investors to note that AI stock has rocketed higher this year. However, with a higher valuation comes additional scrutiny from investors.

Now, the question is whether companies like C3.ai have seen their valuations get ahead of themselves. There’s an ongoing debate with respect to AI-focused businesses, as to whether future growth expectations can align with current valuations.

Let’s dive into the bull case behind AI stock, and try to make an argument as to why this artificial intelligence play could have more room to run.

The Upsides of AI Stock

C3.ai provides customized solutions for energy management, supply network risk, and inventory optimization. It primarily serves oil and gas (34% of bookings) and defense (29%) sectors, yielding success with a 266% surge in shares this year due to AI’s popularity.

The company navigated slow growth through a business model shift.

C3.ai’s Generative AI product garnered demand with three deals post Q4 launch. Yet, financials indicate challenges. Morgan Stanley’s AI bubble argument cites Nvidia’s 206% surge, exceeding past bubbles.

Edward Stanley’s analysis uses Nvidia as an AI proxy. Indeed, C3.ai, with bigger gains, could be affected by Nvidia’s potential stock drop.

That said, other analysts remain bullish on AI stock from here, with several recent price targets above where the stock is currently trading.

That said, given AI stock’s recent run, the consensus price target for this stock does imply some downside, detracting from the overall bullish case one might want to make for this name.

The Bull Case

C3.ai is a leader in enterprise AI, assisting businesses in building cost-effective AI applications. Its pre-built apps cover various uses, including fraud detection and customer engagement.

The company serves diverse industries, with strong ties to oil and gas and federal sectors, contributing to about 63% of its fiscal 2023 revenue.

Before delving into the positive side of C3.ai, it’s crucial to acknowledge the speculative nature of its outlook. Heed concerns from bearish views, like Kerrisdale Capital, as the stock’s valuation is high relative to recent performance.

Despite this, C3.ai has the potential for exceeding expectations in the long term.

Despite recent losses, the company anticipates non-GAAP profitability for the current fiscal year. Financially, C3.ai remains robust, with nearly $790 million in cash and zero debt, ensuring strong capitalization and funding potential growth.

C3.ai is unquestionably speculative, yet with firm financial stability and potential for success in risk-embracing investor portfolios.

When to Buy AI Stock

Beyond AI stock hype, there is some tangible value with AI stock. The company has ventured into generative AI, with its C3 Generative AI Product Suite.

While its recent launch had minimal financial impact, management and analysts expect growth resurgence this fiscal year (ending April 2024). In May, the company guided for $295 million to $320 million in FY2024 revenue.

This could mark a return to double-digit revenue growth, accompanied by C3.ai’s target of non-GAAP profitability.

Analysts expect approximately $305.6 million FY2024 revenue, with growth speeding up in FY2025. While current prices factor in growth, a potential buying opportunity may arise if AI hype recedes.

For now, AI stock remains too speculative for my blood, personally. But I can understand the bullish thesis behind this company, as a pure play on bolstered AI-related growth expectations.

I think a cautious approach to this name is warranted, but this is one I will follow closely from here and provide ongoing updates.

On the date of publication, Chris MacDonald 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.