C3.ai or PLTR: which is Top AI stock to Buy ?
Artificial intelligence (AI) software company $C3.ai, Inc.(AI)$ has just released its quarterly earnings.
Overall, it beat on earnings and revenue expectations as it posted its fiscal first-quarter financial results on 04 Sep 2024.
Q1 2025 Earnings.
Company reported a loss before certain costs (eg. stock compensation etc…) of -$0.05 per share, vs Wall Street’s forecast of a wider loss of -$0.13. (see above)
Revenue for the period spiked +21%, coming in at $87.2 million, vs Wall Street forecast of $86.9 million.
What CEO Said.
C3 AI, Chief Executive Thomas Siebel has remarked positively:
The company is off to a “solid start” for FY 2025.
Rising demand for enterprise AI helped to drive company’s “6th” consecutive quarter of accelerating revenue growth.
Q2 2025 Outlook.
Current quarter’s EPS forecast is expected to dip by -7.16% YoY.
Current quarter’s sales estimates slated to be between $88.6 million & $93.6 million, compared with the $91.1 million analyst consensus forecast.
In short, C3.ai delivered an outlook that was more or less in line with the Street’s guidance. (see above)
Investors’ Sentiments.
Investors however, have been disappointed with C3 AI’s subscription revenue that was way lower than Wall Street’s target.
C3.ai reported $73.5 million, while analysts were expecting $79.2 million
Subscription revenue is a key metric for C3.ai.
Investors are of the opinion that rapid growth there is required, to enable return to profitability.
After all, C3.ai is one of Silicon Valley’s oldest enterprise AI development software providers.
Its flagship C3.ai Application Platform:
Offers a comprehensive suite of tools and services for businesses that need to build intelligent, enterprise-scale applications, including generative AI apps.
Allows teams to build those applications faster and at a lower cost than other approaches.
Issues.
The issues with C3.ai and its product “Application Platform”: (see below)
In recent years, company struggled to gain much traction, prompting a shift away from selling software licenses to a subscription-based consumption model.
In late 2022, it pivoted to the software-as-a-service (SaaS) model, that is used to good effect by the likes of Amazon Web Services (AWS) and $Snowflake(SNOW)$.
Its slower-than-expected growth in subscription revenue, have investors questioning when C3.ai is going to become profitable again.
One year earlier, it said it hoped to attain profitability by the end of fiscal 2024 by investing in branding, lead generation and market awareness.
One year on, those profits failed to materialize.
Q1 2025 earnings showed that C3.ai failed to make substantial progress, instead it reported a net loss of -$62.8 million, improving only slightly from a $64.3 million loss a year earlier.
If its any consolation, the company has made “baby” progress on the customer acquisition front:
It said it closed on 71 new agreements during the quarter.
This is up +122% YoY, including 52 pilots.
Its federal business also gained momentum, with the company signing new contracts with the (a) US Air Force, (b) US Navy, (c) US Marine Corps and (d) US Intelligence Community.
Other new enterprise customers include (i) Brazil’s largest power generation and transmission company Centrais Elétricas Brasileiras S.A. and (ii) US steel manufacturer $Nucor(NUE)$
Despite the “optimistic” new agreements announced, the company is not expected to achieve profitability in 2024 - a bummer!
It sees full-year revenue for fiscal 2025 of $370 million to $395 million, with an operating loss of -$95 million to $125 million.
Aftermath.
C3.ai's Stock Price:
It dipped -2% during trading on 04 Sep 2024.
When earnings were announced after market closed for the day, it further fell -16% in after-hours trading.
Realized-fall came in at -8.21% on Thu, 05 Sep 2024 when market called it a day. (see above).
It is not surprisingly, C3.ai’s stock has struggled to gain much traction of late.
Prior to its Wednesday’s earnings released, it was already down -20% YTD, compared with a +14% gain for the broader Nasdaq index.
Takeoff.
In all honesty, C3.ai did not really takeoff until after ChatGPT unveiling on 30 Nov 2022. (see above)
Prior to ChatGPT unveil, its stock price was hovering around $13 per share.
Ignoring the temporary spike in Q1 2023, it really took off in Q2 2023 from approx. 15 May 2023 onwards.
Reacting after $NVIDIA Corp(NVDA)$’s breakout from late Q1 2023 onwards. And there’s no looking back since for the undisputed AI chipmaker.
PLTR Comparison.
C3.ai and $Palantir Technologies Inc.(PLTR)$ , both prominent players in the AI space, have had contrasting journeys on the US stock exchange since their respective IPOs:
Palantir IPO-ed on 30 Sep 2020 by themselves via a direct listing and did not use any investment banks to underwrite its deal..
C3.ai followed suit on 08 Dec 2020 with JPM, MS and BAC as lead book-running managers for their IPO.
C3.ai's Explosive Start (December 2020):
C3.ai burst onto the scene in December 2020 with a bang.
Their IPO saw a staggering +140% surge on its first day of trading; driven by hype surrounding the potential of enterprise AI software.
Initial optimism stemmed from C3.ai's focus on industrial applications, promising solutions like predictive maintenance and fraud detection.
Initial Outperformed:
Freshness Factor: As a newer company, C3.ai captured investor imagination with its vision of a future powered by AI.
Focus on Specific Applications: Their clear focus on industrial use cases resonated with some investors seeking tangible results from AI.
Palantir's Measured Approach (September 2020):
Palantir, which went public a few months earlier (September 2020), did not experience the same initial explosion.
Their business model, centered around (a) data fusion and (b) analytics platforms for government and defense clients, offered a more measured growth story.
Palantir's Catch-Up:
However, Palantir's stock price steadily climbed over time, due to :
Proven Track Record: Palantir demonstrated a solid track record with established government contracts, providing a sense of stability.
Shifting Market Sentiment: As investors matured their understanding of AI, the focus shifted from hype to practicality. Palantir's established presence fit this trend.
Increased Scrutiny of C3.ai: Concerns arose about C3.ai's profitability and reliance on a key partnership (Baker Hughes) that neared its expiration in 2025.
Where They Stand - September 2024:
C3.ai:
The initial excitement fizzled.
Their stock price has fallen significantly from its IPO peak, currently trading around $21.12 (as of 05 Sep 2023).
Despite efforts to diversify their customer base, the loss of the Baker Hughes partnership looms large as the contract expires in 2025.
Palantir:
Although it did not experience exponential growth, it has a more consistent rise.
Their stock currently sits around $30.16 (as of 05 Sep 2024 closing), demonstrating a more stable trajectory.
Looking Ahead:
Both companies face challenges of their own.
C3.ai needs to prove its long-term viability beyond the Baker Hughes partnership.
Palantir needs to expand beyond government contracts and showcase wider industry adoption.
Future of these 2 AI stocks depend on their abilities to navigate the challenges ahead and deliver on their promises, without being affected by the state of US economy - a Tall order indeed!
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Do you think Palantir is a better AI stock, compared to C3.ai or vice versa?
Do you think US economy in 2025 will compliment & boost US market higher instead of dragging it down?
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