Markets
AI

Outstanding Fiscal Results Clear the Runway to $100 for C3.ai

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

It’s surprising to see that enterprise artificial intelligence (AI) firm C3.ai (NYSE:AI) wasn’t a darling of the markets in 2021’s first half. Tech is king, so it would make sense for AI stock to be much higher than it is today.

A stock image of a brain with the letters AI

Source: shutterstock

But then, the markets aren’t always logical. Sometimes assets are mis-priced – and that can lead to prime buying opportunities.

The debut of AI stock was surrounded by hype and hope, but now the enthusiasm has faded. Yet, at the same time, the company is doing well.

There’s fresh data to back up this claim. So, let’s delve into a stock that’s far from its peak and, in my humble opinion, has plenty of room to run.

A Closer Look at AI Stock

Let’s rewind the clock to December of 2020, when C3.ai had priced its initial public offering (IPO) at $42 a share.

The previously established price range was $36 to $38, which was already higher than the originally expected range of $30 to $34. So, there was some price inflation from the outset.

And here’s where it gets crazy. AI stock opened for trading at $100 on Dec. 9 and even went as high as $115.

The upward momentum continued for a little while longer, with the stock soaring to a 52-week high of $183.90 on Dec. 22.

Soon after that, the price chasers got punished.

AI stock started to slide in early February of 2021, and hit $50 in May. The shares were still close to the $50 level in mid-July.

Hopefully, we can all learn a lesson here about what might happen if we buy stocks during a hype cycle. Oftentimes, the results aren’t good.

So now, it’s just a question of whether to buy AI stock at a discounted price. Perhaps a glance at the company’s financial results can help us decide.

Setting a Record

June 2 was a monumental day for C3.ai’s stakeholders. That’s when the company released its results for its fiscal fourth quarter, as well as for the full year ending on April 30, 2021.

The skeptics simply can’t argue with the data. Let’s start with the fiscal fourth quarter:

  • $52.3 million in total revenues, an increase of 26% year-over-year (YoY)
  • $43.1 million in subscription revenues, up 17% YoY
  • $40.6 million in gross profit (with a 78% gross margin), signifying a 26% YoY increase in gross profit
  • Total enterprise AI customer count of 89, representing an 82% YoY improvement

That last bullet point shouldn’t be discounted, as it demonstrates that C3.ai is rapidly accelerating its customer-building momentum.

Getting to $100

Was the fourth-quarter performance just a fluke?

The bears can’t really make that argument, as C3.ai’s full-year results were also impressive:

  • Total revenues of $183.2 million, up 17% YoY
  • Subscription revenues of $157.4 million, an increase of 16% YoY; meanwhile, subscription revenues as a percentage of total revenues remained at 86%
  • Gross profit of $138.7 million (with a 76% gross margin) represented an increase of 18% YoY in terms of gross profit

The company’s growth – we’re talking about an increase from 49 to 89 customers in the span of one year – should be reflected in the AI stock price.

Yet, the market just seems to be ignoring C3.ai’s expanding market footprint.

There’s actual proof that this company is successfully building its brand awareness. Specifically, “In Q4 FY 2021, C3 AI ranked #1 in internet search results for the term “Enterprise AI” across virtually all measurements.”

I’m not saying that the share price needs to get back to the bubble-icious peak of $183. The point here is that $100 is reasonable, and achievable.

The Bottom Line

A compelling argument could be built that C3.ai is establishing a strong foothold in its niche market.

Nevertheless, the market doesn’t seem to recognize the company’s growth, especially in terms of customer count and brand awareness.

This means that there’s an opportunity in AI stock, which deserves to be much higher.

On the date of publication, David Moadel 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.

The post Outstanding Fiscal Results Clear the Runway to $100 for C3.ai appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

AI

Latest Markets Videos

    InvestorPlace

    InvestorPlace is one of America’s largest, longest-standing independent financial research firms. Started over 40 years ago by a business visionary named Tom Phillips, we publish detailed research and recommendations for self-directed investors, financial advisors and money managers.

    Learn More