This is my first time writing about C3.AI Inc (NYSE:AI) stock. It seems the big question on investors’ minds is if, or when, to buy AI stock.
Since soaring well above its IPO price, the stock is trending toward $70 this morning.
I found this article by Ian Bezek extremely helpful in understanding the bullish argument for AI stock. And I also found Matt McCall’s perspective on the company very helpful.
But it’s important to not ignore the potential problems. To begin with, C3.AI is not profitable, which isn’t altogether concerning. However, the company’s net losses have widened over the past three years, not just during 2020 when it can be expected due to the pandemic.
So let’s take a look at a couple of, let’s call them concerns, about AI stock.
A Closer Look at AI Stock
At the end of 2020, the company had 30 clients. That’s not a concern. C3.AI is in the business of snagging huge contracts from large clients. So investors should be thinking less about the quantity of the clients, but rather the quantity (i.e. size of the contract) they get from each client.
That’s one area that could use a little color (as they like to say). Three of the company’s 30 customers accounted for 44% of its 2020 revenue. One client, Baker Hughes (NYSE:BKR), accounted for 70% of the revenue by itself.
This brings up something else to ponder. Baker Hughes is also a minority owner in C3.AI and there is some discussion that it may jettison some shares in late April. Either way, the company is still within its lockup period which means that the stock could have some selling pressure. Perhaps as evidenced by the fact that short interest at the end of March was around 25%.
Keeping the Competition Close
You’re likely familiar with the old saying, “keep your friends close and your enemies closer.” I’m not going to call Amazon (NASDAQ:AMZN) or Microsoft (NASDAQ:MSFT) enemies of C3.AI, but they are competitors, at least in theory.
At this time, C3.AI services run on top of the Amazon Web Services (AWS), Microsoft Azure, and other cloud platforms, but the field of integrated AI services is new. At some point, these companies may decide to develop their own in-house services to compete with C3.AI.
Preventing Another Texas
If you’re like me, you may understand AI just enough to make a dangerous investing decision. In trying to determine the opportunity for C3.AI, I listened to the company’s founder, tech legend Tom Siebel, describe how the company’s platform can specifically aid the oil and gas industry.
This is important because, as we mentioned above, Baker Hughes is a significant client for the company as is Royal Dutch Shell (NYSE:RDS.A)
C3.AI is helping to solve the problem of distributing resource energy management. If this sounds familiar, it’s because it was a big reason that the grid “failed” during this year’s winter storm in Texas.
Essentially, it’s using AI to determine how to balance the load on the grid with the power being produced. Siebel said that without it, it will be impossible to deploy renewables in a meaningful way.
Investors who are better versed in AI can produce other instances I’m sure but this is just one example of why the market for C3.AI’s platforms should remain strong.
Is AI Stock a Buy?
So I’ll end the article where I started, asking if it’s time to buy AI stock.
When it was down at $60, I would have said to buy the dip, but as it approaches $70 I’d urge a little more caution.
I’d like to get more information from the company, and we may get that when the company reports quarterly earnings sometime in May.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.