The Market Is Greatly Underestimating C3.ai Stock

Stocks to buy

With enterprise artificial intelligence software company C3.ai (NYSE:AI) adding impressive customers and growing its revenue at a fairly rapid pace, I continue to believe the company can become the “Microsoft of AI.” Just as Microsoft (NASDAQ:MSFT) developed tools that made it easy for businesses to develop documents and perform complex calculations, C3.ai has created products that enable companies to easily harness AI for various purposes.  Consequently, the longer-term outlook for AI stock remains upbeat.

a visual representation of the data underlying an artificial intelligence (AI) powered solution

Source: Shutterstock

Importantly, the company is teaming up with partners that have significantly advanced its business and should continue to do so in the future. Also making the shares attractive is their reasonable valuation.

C3.ai Lands New Customers, Delivers Strong Growth

For the fiscal second quarter, ended Oct. 31, the number of customers C3.ai serves jumped  63% to an impressive 104. The company added some top-notch customers in the private and public sectors.

On its list of new corporate clients are industrial behemoths Johnson Controls (NYSE:JCI) and CNH Industrial (NYSE:CNHI), energy giant Royal Dutch Shell (NYSE:RDS.A), insurance gorilla Liberty Mutual and “a top 5 life sciences company.” In the public sector, the company signed a deal with the U.S. Space Force.

Moreover, several of C3.ai’s existing large customers have increased their use of the company’s technology. Among the enterprises in this category are multinational energy company Enel, food and industrial heavyweight Cargill, financial services giant FIS, the U.S. Air Force and the U.S. Missile Defense Agency.

For the quarter, C3.ai’s top line soared 41% year over year to $58.3 million. Sales to the public sector surged 33% from a year ago, and CEO Tom Siebel said on the company’s earnings call that he anticipates public sector sales will accelerate during the current and next quarter.

Highly Effective Partners Should Benefit AI Stock

C3.ai is partnering with not one, but two cloud giants: Microsoft’s Azure and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud.

In partnership with Microsoft, C3.ai closed roughly $220 million of business as of Dec. 1, and the companies’ pipeline consisted of about 120 partnerships and $140 million of potential revenue, according to Siebel.

C3.ai started working with Google Cloud relatively recently, but as of Dec. 1, the companies had already assembled a pipeline of $58 million of business, the CEO reported.

Meanwhile, C3.ai is collaborating with two large but very different players in the energy sector: Baker Hughes (NASDAQ:BKR) and Engie.

Baker Hughes, which provides products for fossil fuel exploration and extraction, has established a joint venture with C3.ai. The joint venture, appropriately called BakerHughesC3.ai, says that it has developed products that “accelerate delivery and reduce the complexities of developing enterprise AI applications.”

The joint venture says that artificial intelligence can “achieve better field economics through optimized upstream operations.” AI is also able to “improve availability, efficiency, quality, and throughput of downstream operations.”

Engie, which generated 55.8 billion euros in revenue in fiscal 2020, focuses on “carbon neutral” endeavors, such as renewable energy, energy storage and green hydrogen. As I’ve stated in the past, I expect all of these sectors to grow rapidly as the world focuses on reducing carbon emissions. As a consequence, I believe that the alliance with Engie will prove to be very lucrative for C3.ai in the long run.

C3.ai’s Advantages

Unlike other companies in the AI space, C3.ai does not specialize in new, standalone products. Instead, its systems primarily work in tandem with companies’ existing software.

Moreover, the company focuses on enabling its customers to easily access and utilize AI. As Investor’s Business Daily’s Reinhardt Krause explained, C3.ai seeks ” to make it easier for companies to build artificial intelligence applications with its off-the-shelf tools and avoid costly customization projects.”

The company has developed dozens of ready-to-use applications for several sectors, including financial services, telecom, manufacturing and fossil fuels companies, Siebel said. Using these apps, companies in those sectors can quickly and easily begin using AI to suit their specific needs, the CEO explained.

The Bottom Line on AI Stock

Trading at 13.2 times analysts’ average 2022 revenue estimate for C3.ai, the valuation of AI stock is reasonable for such a rapidly growing company with tremendous potential. What’s more, in the first half of FY22, C3.ai burned just $20 million of cash, so the company is close to generating positive cash flows.

C3.ai is making great progress and has important advantages over its competitors, while the stock’s valuation is reasonable. Consequently, I recommend that long-term investors buy AI stock.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. 

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