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Proprietary Data Insights Financial Pros’ Top AI Software Stock Searches in the Last Month
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The Top 5 AI Software Stocks According to Financial Pros |
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Every other word on CNBC these days is AI. And for good reason. Generative AI is predicted to become a $1.3 trillion market by 2032. Companies like Microsoft (MSFT), Palantir (PLTR), and Google (GOOG) dominate most of the media coverage. Yet, our proprietary TrackStar data showed that search volume for C3.AI (AI) has been steadily increasing over the past few months. Yet, the company isn’t profitable and struggles to generate cash from operations. But is this all just a precursor to explosive growth? C3.AI’s Business C3.AI provides cutting-edge software solutions that enable the development and deployment of large-scale AI applications. Its edge lies in delivering scalable, secure, and reliable AI solutions designed to tackle complex business challenges and propel digital transformation. The company caters to a diverse customer base, offering tools like the C3 AI Suite and C3 AI Applications, which facilitate adopting AI solutions in critical operations. This approach not only enhances efficiency but also drives innovation within industries seeking to leverage the power of AI. C3.AI segments its business into the following areas:
The company boasts an everchanging, wide array of customers across multiple industries.
Source: C3.AI Q3 2024 Slide Deck While C3.AI markets to businesses of all sizes, the majority of its deals are less than $1M.
Source: C3.AI Q3 2024 Slide Deck Financials
Source: Stock Analysis Despite all the noise around the stock in 2022 and 2023, it hasn’t seen much growth. In the past year, sales grew just 11%, with forecasts putting 2024 at 13%. Compared to Nvidia, that’s not even in the same stratosphere. However, the latest quarter was a marked improvement, with revenues up 18% YoY led by subscription sales up 23%. Partner-supported bookings, with companies like Google, Amazon, and Microsoft, were up 33% YoY and 62% QoQ. Profitability and positive cash flow from operations aren’t quite there yet. Notably, gross margins have fallen about 10% per year for the past few years. However, this has been expected as the higher mix of pilots comes with a greater cost. Nonetheless, the company has over $700 million in cash with practically no debt. So, it’s only a matter of time before they turn the corner. Valuation
Source: Seeking Alpha C3.AI doesn’t turn a profit or generate cash, so we can’t compare it on standard valuation metrics. Price-to-sales works well in this case. Interestingly, C3.AI is cheaper there than every other company listed except for Adobe (ADBE). That would imply investors aren’t willing to pay for their growth…yet. Growth
Source: Seeking Alpha Speaking of growth, C3.AI’s revenues are about average, which isn’t good for such a small company. However, recent quarters have shown marked improvement in recent quarters. Plus, they provided higher guidance for next quarter built on a rosy outlook for federal contracts. Profitability
Source: Seeking Alpha Similarly, C3.AI’s profitability isn’t exceptional, with gross margins second to last among the group. However, management says this will improve as the product mix improves over the next few years.
Our Opinion 4/10 C3.AI has a great product. But it isn’t unique. And given the huge growth happening right now, we’d expect a better revenue performance. We’d prefer to put our money into other AI software companies such as Microsoft with a clearer vision and strategy. |
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