C3.ai, an enterprise software platform specializing in AI-powered applications, is facing scrutiny from investors as its financials raise concerns about its long-term sustainability. Despite its impressive growth and partnerships with tech giants like Microsoft, Alphabet, and Amazon, the company’s shares have declined by 28% over the past year.
The revenue trend for C3.ai over the last five years demonstrates steady momentum, aligning with the increasing demand for AI products in the business world. The company’s ability to forge partnerships with cloud infrastructure platforms has been a significant source of lead generation, resulting in a rising deal flow. In the fiscal year 2024, C3.ai closed 115 deals through its partner ecosystem, marking a 62% year-over-year increase.
C3.ai’s generative AI products have found success across various industries, including manufacturing, defense, life sciences, chemicals, energy, agriculture, and government contracting. This expanding target market has contributed to the company’s revenue acceleration.
However, a closer analysis of C3.ai’s income statement reveals a concerning financial profile. The company’s spending on sales and marketing, as well as research and development, has outpaced its revenue significantly. In fiscal 2024, C3.ai reported a net loss of $280 million and an adjusted operating loss of $95 million. The company’s guidance for fiscal 2025 indicates further adjusted operating losses ranging from $125 million to $95 million, raising concerns about its long-term financial sustainability.
Performing a valuation analysis on C3.ai is challenging due to its lack of profitability and the absence of accurate comparable company data. Comparing the company’s price-to-sales (P/S) ratio to other software-as-a-service (SaaS) AI players, C3.ai appears to be the least expensive stock. However, this discounted valuation is justified by the company’s financial dynamics and the superior performance of competitors like Palantir, which generates positive net income and free cash flow.
Investors seem to view C3.ai as a less compelling option compared to Palantir when considering smaller enterprise software AI opportunities. While C3.ai’s growth is impressive, it falls short of instilling widespread conviction among investors that the company can effectively compete with its peers or larger rivals.