Despite the broad stock market indexes like the S&P 500 and Nasdaq 100 regularly trading near all-time highs, some individual technology stocks are lagging behind. For investors who are sitting on some cash, there are some enticing opportunities.
C3.ai (NYSE:AI) is a first-of-its-kind enterprise artificial intelligence (AI) developer, selling everything from ready-made solutions to custom-built applications to eight of the largest industries in the world. For companies that can't develop AI in-house, C3.ai bridges the gap.
Its stock currently trades at $38.25, and one Wall Street firm thinks it could soar 219% to $122. Here's why.
Image source: Getty Images.
From oil to technology
Not all companies can access the incredible benefits of artificial intelligence by developing the technology themselves. How, for example, would an oil and gas giant succeed in attracting the talent when those high-skilled programmers can work for technology behemoths instead?
Yet, AI has the potential to cut carbon emissions by improving efficiency and has predictive capabilities that can identify equipment failures before they turn catastrophic. That's likely why the oil and gas industry makes up 35% of C3.ai's revenue, and one industry leader has taken the relationship a step further.
Baker Hughes has worked with C3.ai to build an entire suite of AI applications specifically for oil and gas companies. The project is dubbed BHC3.ai and has attracted multi-year deals with customers like Royal Dutch Shell.
But as a technology company, C3.ai is also impressing its peers. It's developing AI applications in collaboration with the cloud computing arms of tech royalty like Microsoft and Alphabet's Google. The goal is to provide AI-driven solutions to the manufacturing, healthcare, and financial services industries (among others) to drive them toward the future.
Accelerating financial performance
Investors haven't been overly pleased with the rate of C3.ai's growth since it listed publicly in December 2020. But after some early teething issues, the company is seeing a rapid increase in new customers and a subsequent acceleration in revenue growth.
|
Metric |
Fiscal 2019 |
Fiscal 2022 (Q1) |
CAGR |
|---|---|---|---|
|
Total customers |
21 |
98 |
98% |
Data source: C3.ai. CAGR = compound annual growth rate
It typically takes the company up to six months to deliver an AI application to a customer after they've determined the scope of the project. Revenue growth can therefore lag behind customer growth, and so the above increase in customers indicates that the next few quarters could be quite strong.
Analysts certainly think so, with an expectation C3.ai will cross $200 million in yearly revenue for the first time ever in fiscal 2022.
|
Metric |
Fiscal 2019 |
Fiscal 2022 (Estimate) |
CAGR |
|---|---|---|---|
|
Revenue |
$92 million |
$246 million |
38% |
Data Source: C3.ai, Yahoo! Finance. CAGR = compound annual growth rate
Why the stock is a buy
The market for artificial intelligence is expected to grow to $360 billion (annually) in size by 2028, which represents a compound annual growth rate of over 33% from 2021. Given C3.ai's revenue is growing faster than that, it's likely the company will seize a greater share of that market over time.
But C3.ai already has the largest enterprise AI footprint in the entire industry, making 1.7 billion predictions per day across 24.4 trillion data elements. The diversity of where those predictions are made could also set it apart from future competitors who bring a more narrow approach, as C3.ai has built a footprint across oil and gas, utilities, financial services, and life sciences, to name a few.
While Wall Street firm Needham has a Street-high 12- to 18-month price target of $122 a share on C3.ai's stock, it's worth noting it did reduce it from $146. The company hasn't yet proven its ability to generate a profit, and it may continue to make losses while it builds scale. However, its 78% gross margin leaves it plenty of room to invest in growth, as when a sufficient level of revenue is achieved it can pare back its expenses to deliver earnings for investors.
But with some of the world's greatest tech titans in its corner, a share price of $122 might even look conservative over the long term.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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