So, you’ve heard about the hype surrounding AI stocks and want to start investing. You do some research and discover there’s a company whose ticker is literally “AI.” That has to be a good place to start, right? Wrong.

On the surface, C3.ai (Nasdaq: AI) might seem like a no-brainer when it comes to top AI stocks to buy. But, you should stay far away from this company. Here’s why.

What is C3.ai?

C3.AI is a bit of an all-in-one AI software company. It offers ready-to-use AI applications across a range of different industries including CRMs, supply chains, defense & intelligence, financial services, and more. C3.AI also boasts a handful of impressive clients including Koch Industries, Shell (NYSE: $SHEL), and the U.S. Air Force. C3.ai focuses primarily on enterprise AI solutions, meaning that it offers generative AI tools for corporations – not consumers. 

C3.AI: Last Three Quarters

To get a better understanding of whether or not to buy C3.ai stock, we need to look at its financial statements. This is how we determine how much money the company makes (Or, in C3.ai’s case, loses). Here’s how C3.ai has performed over the last three quarters:

• January 2024

• • • Revenue: $78.4 million (+18% annually)
    • Net Income: $-72.63 billion (+10% annually)

• October 2023

• • • Revenue: $73.22 million (+17% annually)
    • Net Income: $-69.78 million (-1% annually)

• July 2023

• • Revenue: $72.36 million (+11% annually)
  • Net Income: $-64.36 million (+10% annually)

Right away, we can see that C3.ai is posting fairly moderate revenue growth. Annual revenue growth of 18% isn’t bad. But, it’s also not overly impressive. There are dozens of much larger companies in less exciting industries that are growing faster than this. But, it’s not C3.ai’s moderate revenue growth that concerns me – it’s the consistent losses.

C3.ai has posted increasingly larger losses over the past 3 years – which is bad news for C3.ai stock.

• 2021: Net loss of $55.7 million
• 2022: Net loss of $192.07 million
• 2023: Net loss of $268.84 million

There are some scenarios where this type of increasing loss is acceptable. For example, Amazon (Nasdaq: AMZN) was famously unprofitable for years while it built up its business. For example,  if C3.ai’s revenue was soaring and the company was investing heavily back into its businesses then I might be willing to overlook these losses. But, the company’s revenue is showing only moderate growth while losses increase rapidly – not good.

The main goal of a company is to make money and return value to its shareholders – either through stock price growth or dividends. C3.ai is going in the opposite direction and making less money year after year. So, at what point do investors start to view C3.ai as simply an unprofitable failure of a company?

Right now, C3.ai is valued at close to $3.4 billion. But, there’s a good chance that much of this valuation comes from the hype surrounding AI. If C3.ai posted similar revenue and net income numbers but operated in, say, the waste management industry then I doubt it would be worth $3 billion. 

So, what happens after a few more quarters of slow growth and unprofitability? C3.ai’s stock and valuation will quickly start to plummet.

C3.AI Most Recent Earnings Call

To give C3.ai a fair and unbiased shot, I dug through the company’s most recent earnings report. Here’s what I learned:

• Q3 revenue was $78.4 million, up 18% compared to $66.7 million last year.
• Quarterly GAAP gross profit was $45.3 million, a 58% gross margin (this is gross profit, not net).
• In Q3, C3.ai closed 50 agreements, up 85% year-over-year
• Customer Engagement for the quarter was 445, an increase of 80% compared to 247 one year ago
• C3.ai’s AI system uses “full traceability to find the truth.” This means that its AI tech can always reference source documents or data for each insight it generates.

In all fairness, I have to say that C3.ai actually had a pretty solid quarter. But, again, a lot of this growth just feels like C3.ai being in the right place at the right time. I don’t expect the positive news from this quarter to lead to C3.ai stock gains down the road. Let me explain.

Here’s Why You Should Stay Far Away From C3.AI Stock

Before I jump into it, remember that C3.ai stock is already down over 75% since going public in late 2020. But, that’s not the reason that you should stay away. After digging through C3.ai’s investor presentation, quarterly earnings, and website, my biggest takeaway is that…there is no big takeaway. This is terrible news for C3.ai. To give you a better idea of what I mean, allow me to make a bit of a comparison.

C3.ai Vs. Dropbox

If I had to compare C3.ai to another company, I’d compare it to the cloud storage company, Dropbox (Nasdaq: $DBX). Both of these companies are just outmatched within their respective industries, which will make it very hard to grow quickly. Dropbox mainly offers cloud storage products. So, it competes directly with the likes of Microsoft Azure (Nasdaq: MSFT), Amazon Web Services (Nasdaq: AMZN), and Google Suite (Nasdaq: GOOG). Tough competition.

Due to the competitiveness of its industry, Dropbox just has a very hard time competing and growing significantly year-over-year. I mean, it’s not a terrible company and still posted a respectable $2.5 billion in 2023 annual revenue. But, Dropbox’s growth has stalled at around 7-12% in past years and the company’s stock is up just 11% over the past five years. I don’t necessarily think Dropbox will go bankrupt anytime soon. But, the company (and its stock prices) will struggle to grow. C3.ai stock will likely share a similar fate.

C3.ai offers enterprise AI solutions. This means that compete directly against the world’s biggest and brightest companies. This includes Nvidia (Nasdaq: $NVDA), OpenAI, Google, Microsoft, Apple (Nasdaq: AAPL), and many others. This doesn’t mean that C3.ai won’t be able to lure any new customers to grow revenue. But, it will likely be an afterthought within the industry and have a very hard time competing against the world’s biggest tech giants.

For C3.ai, the most likely scenario is modest 5-15% annual growth in the coming years – which will only lead to subpar stock returns. As an investor, I’d recommend staying away. Fortunately, there are much more exciting AI companies to invest in than C3.ai.

I hope that you’ve found this article valuable when it comes to learning about C3.AI stock. If you’re interested in reading more, please subscribe below to get alerted of new articles.

Disclaimer: This article is for general informational and educational purposes only. It should not be construed as financial advice as the author, Ted Stavetski, is not a financial advisor. Ted also does not own shares of C3.ai.