Is This The Best Time to Buy C3.ai Stock?

Chris MacDonald

Wed, Nov 22, 2023, 5:56 AM 4 min read

Despite being unprofitable, C3.ai (NYSE:AI) stock has been on an absolute tear this year. There are few true pure-play options for investors looking to ride the wave of momentum higher in the artificial intelligence space. Accordingly, as a company focused on providing enterprise AI solutions, AI stock continues to be among the top choices for hyper-growth investors right now.

According to IDC, the company is well-positioned to tap into the expanding AI software market, estimated at $251 billion by 2027. Accordingly, despite a volatile showing this year (in which the stock lost half its value mid-year), AI stock has rebounded and is up roughly 200% since the beginning of the year.

Let’s dive into whether this ride can continue and if now is the time to get in on AI stock.

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Partnership with Amazon

C3.ai stock surged on November 15 following news of an expanded partnership with Amazon (NASDAQ:AMZN). The collaboration with Amazon Web Services (AWS) allows C3.ai to provide AI solutions to address key challenges in manufacturing, power and utilities, and consumer packaged goods markets.

C3.ai’s ongoing partnership with Amazon underscores the value of its AI services and reflects a positive history with AWS since 2016. The stock rose 2.3%, with 2.6 million shares traded compared to its daily average of 8.1 million.

This is a key sticking point for many investors, who point to C3.ai’s clientele as a key reason to own this stock. If the company can continue to win business from similar mega-cap names, bulls believe it could be off to the races.

C3.ai is Winning in the AI Race

C3.ai is a dedicated AI-focused stock distinct from diversified tech giants. Specializing in AI, it is a SaaS company enabling large AI applications, aiding clients like the U.S. Air Force in predicting system failures and optimizing mission capability.

Additionally, AI stock has unveiled its generative AI suite, commencing with enterprise search as its inaugural product. Pioneering in its sector, C3.ai stands out as the sole end-to-end enterprise AI development platform. While the AI SaaS market evolves, potential competition from major cloud infrastructure players like Amazon or Microsoft may emerge.

Excellent Growth Drivers

C3.ai is positioned for substantial gains in the booming enterprise AI software market, forecasted to reach nearly $1.1 trillion by 2032. The company’s platform, serving clients like Shell and Duke Energy, offers an efficient and cost-effective means for building AI applications. Partnering with major cloud platforms expands its user base and attracts new customers.

C3.ai experienced notable market success, securing 27 deals in Q3 of fiscal 2023, up from 20 in the same period the previous year. The shift to a consumption-based business model, moving away from subscriptions, is expected to accelerate growth, offering customers more flexibility and attracting a broader user base. The company anticipates scaling up this model faster than the subscription approach within eight quarters of initiation.

Maybe There’s Some Room for Bullishness Right Now

C3.ai isn’t the cheapest stock out there by a long shot. The company’s valuation (at nearly 9 times sales) is what I’ve balked at for some time.

However, for long-term growth investors who read the tea leaves right and can predict the winners, there could be a major upside ahead. I’m not sure if C3.ai will be the next Amazon, but its stock is priced that way.

I thought I’d look at the bullish angle with this stock to see what the commotion is all about. There’s certainly plenty of substance to this company’s growth drivers, and AI technology does appear to be the real deal. However, I’m going to remain on the sidelines until the company can prove that its growth rate is sustainable long-term.

On the date of publication, Chris MacDonald has a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.