Amidst the fervor surrounding AI stocks, one notable outlier has caught the attention of investors: C3.ai. Despite a backdrop of soaring peers, the enterprise AI platform, led by billionaire founder Tom Siebel, has faced perplexing stock price pressure, plunging more than 20% year-to-date.
However, beneath the surface lies a compelling narrative, suggesting that C3.ai might be an undervalued gem awaiting its moment to shine.
Recent Strengths and Market Opportunities
C3.ai has been quietly bolstering its position in the market. The company’s roster of new deals, particularly with government clients, underscores a significant market opportunity. Revenue from federal clients has skyrocketed, hinting at a potential shift in focus similar to that of its peer Palantir.
For those new to the scene, here’s a recap of the long-term bull case for C3.ai:
- Generative AI Tailwinds: The burgeoning interest in generative AI has expanded C3.ai’s total addressable market, promising multi-year secular tailwinds.
- Government Business: Increasing deals with state, local, and federal governments signify a lucrative market previously dominated by competitors.
- Consumption-based Model: C3.ai’s consumption-based business model offers substantial growth potential, following successful models seen in companies like Snowflake and Twilio.
- Industry Diversification: From heavy manufacturing and oil to financial services and healthcare, C3.ai’s expanding applications demonstrate its versatility across industries.
- Solid Partnerships: Strategic alliances with major cloud providers like Amazon AWS, Google Cloud, and Microsoft Azure provide broader reach and optimization for different cloud environments.
Q3 Performance Highlights
Despite market pessimism, C3.ai delivered robust fiscal third-quarter results, surpassing revenue expectations and accelerating growth for five consecutive quarters. The company’s ability to secure new agreements and pilots, alongside its industry diversification, underscores its resilience and adaptability.
Valuation and Outlook
With a market cap of just $2.74 billion and a forward revenue multiple of 5.5x EV/FY25 revenue, C3.ai appears severely undervalued compared to its peers. Wall Street analysts forecast a revenue growth acceleration to 19% y/y for FY25, further bolstering the case for investment.
In conclusion, while the market may currently undervalue C3.ai, its robust fundamentals, growing market opportunities, and attractive valuation make it a compelling long-term investment. As the company continues to navigate the evolving landscape of enterprise AI, investors may find solace in its potential for a substantial rebound.
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