Investors piled into the next stock. C3.ai (A.I. -5.02%) Following the bright news. In its fiscal third quarter 2024 report (ending Jan. 31), the company reported signing 50 new contracts and said it expects revenue to increase for the fiscal year.
But does that make the stock a buy? Financial distress and concerns about key customers often weigh on investors' minds, and investors may wonder whether improvements will alleviate those concerns. Investors will therefore need to take a close look at C3.ai to determine whether they can justify a higher share price.
Improvements in C3.ai
C3.ai specializes in enterprise AI. Such software packages are designed to meet the needs of clients in a variety of applications.
The company also leveraged this opportunity by applying generative AI applications. This allows the software to “learn” the patterns it discovers by applying the tool to large datasets.
Clients range from the U.S. Army to architectural technology companies johnson controls international To oilfield service provider baker fuse Depends on tools provided by C3.ai.
So the fact that the company signed 50 deals last quarter is noteworthy. The company also reported record bookings across its suite of state and local government applications, with an impressive 337% increase in partner-supported bookings.
This news likely influenced C3.ai's stock price to rise nearly 70% compared to last year. And despite the rise, the company's price-to-sales (P/S) ratio is around 15 times. Given the valuations of many AI stocks, investors may not necessarily be hesitant to pay such multiples.
Why some investors are hesitant to buy C3.ai stock
Nevertheless, despite all the improvements, many ongoing struggles persist. Revenue for the first nine months of fiscal 2024 was $224 million, an annual increase of 15%. While this represents significant growth, it falls short of the growth rates of many other emerging AI stocks.
Additionally, total operating expenses for the first three quarters of fiscal 2024 were $363 million, 62% higher than the company's expenses. revenue. Therefore, his loss for the period was $207 million, a slight increase from his $204 million loss in the same period last year.
C3.ai has approximately $723 million in liquidity, so it is not yet in financial trouble. Still, if the company doesn't cut its losses, it may have to resort to issuing stock to stay afloat. The company issued nearly 8 million shares last year, and given the rising stock price, it may continue to do so. Such actions could bode badly for shareholders if the stock price moves in the opposite direction.
Avoid C3.ai stock
Considering the state of C3.ai stock, its negatives appear to outweigh the positives. In fact, the company seems to have been successful in onboarding more customers, and its focus on AI may have made the stock more popular among investors.
However, the scale of operating expenses relative to revenue is alarming, and the company does not see a clear path to profitability. High stock prices may encourage stock issuance to increase liquidity. Still, such a move would reduce shareholder returns, and C3.ai could find itself in dire financial straits if investors lose confidence in the stock.
Ultimately, investors have a number of options when it comes to AI stocks. Since C3.ai's financial situation is unstable, an investor has safer and possibly more advantageous options when it comes to his AI investments.