C3.ai (AI 0.00%) was one of the hottest tech stocks of 2020. The enterprise AI software company went public at $42 a share in December, opening at $100 before hitting an all-time high of $177.47 later that month.
Today, C3.ai shares are trading below $20 per share for three simple reasons. First, their valuations had reached unsustainable levels. At its peak, it was valued at $17 billion, or 93 times the revenue it would actually generate in fiscal 2021 (which ended last April). how sparkling sale price The relationship made it an easy target for bears as rising interest rates crushed the market’s most expensive growth stocks.
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Second, C3.ai’s growth slowed after its public debut. Its revenue increased 71% in fiscal year 2020, but grew only 17% in fiscal year 2021, as the pandemic disrupted its main energy and industrial markets. Its revenue rose 38% to $253 million in fiscal 2022 as those headwinds abated, but it only sees 22% to 25% growth in fiscal 2023 as it deals with several delayed deals.
Lastly, C3.ai remains profoundly unprofitable. His net loss narrowed from $69 million in fiscal 2020 to $56 million in fiscal 2021, but more than tripled to $192 million in fiscal 2022. That sea of red ink made him even less attractive already. that rising interest rates increased borrowing costs for unprofitable businesses.
But after that sharp drop, C3.ai is trading at just six times this year’s sales. Three recent developments, which could be considered green flags, could also cause some bulls to return to this battered stock.
1. C3.ai is expanding its partnership with Google Cloud
Last September, C3.ai partnered with Alphabet‘s (GOOG -0.14%) (GOOGLE -0.36%) Google will co-sell its Enterprise AI apps with Google Cloud plans.
That partnership led to the release of the C3 AI Supply Chain Suite for Google Cloud in June. This new product leverages Google Cloud services to create various AI algorithms to solve the current supply chain crisis. Specifically, it aims to improve on-time deliveries by using C3.ai algorithms to predict demand, optimize inventories, streamline production, and provide more reliable lead-time estimates.
With this new service, C3.ai should be able to attract the attention of more business customers on Google Cloud, the third largest in the world. cloud infrastructure platform. Meanwhile, Google would get another tool to challenge its two biggest rivals: Amazon Web services (AWS) and Microsoft Azure.
2. C3.ai gets a new contract with HHS
In late June, C3.ai and software company CITI were awarded a joint five-year contract worth $90 million from the US Department of Health and Human Services (HHS).
This blanket purchase agreement is intended to accelerate enterprise AI software deployments across HHS, and will enable HHS officials to install C3.ai’s AI applications, access its data collection platform, and analyze data with its predictive machine learning capabilities.
It’s unclear how much of that contract C3.ai will actually recognize as revenue, but it could be significant, as it’s only expected to bring in about $311 million in revenue this year.
3. Other military agreement
Last December, C3.ai signed a five-year, $500 million contract with the Department of Defense (DoD) to scale up its AI-powered applications.
In early July, the defense giant Raytheon Technologies (RTX 0.38%) chose C3.ai’s AI application platform to provide AI and machine learning capabilities for the US Army’s Tactical Intelligence Target Access Node (TITAN), a tactical ground station that tracks threats air and land.
It’s unclear how much this contract is worth, but it will likely complement C3.ai’s DOD deal and potentially deepen its penetration of the military market.
Will these deals solve C3.ai’s biggest problem?
These deals are encouraging, but the real question is whether they can significantly reduce the energy giant’s reliance on C3.ai. Baker Hughes (BKR 1.33%).
Baker Hughes is C3.ai’s joint venture partner, and still accounted for 45% of its RPO (remaining performance obligations, or remaining revenue to be billed from its current contracts) at the end of fiscal 2022. Bears often they cite that client concentration, along with the upcoming expiration of Baker’s joint venture agreement in April 2024, as red flags for its future.
Investors should therefore look at these new deals as green flags for C3.ai’s future, but should also temper their expectations and see if they actually reduce their reliance on Baker Hughes.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. leo sun holds positions in Alphabet (A shares), Amazon and C3.ai, Inc. The Motley Fool holds positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon and Microsoft. The Motley Fool recommends C3.ai, Inc. The Motley Fool has a disclosure policy.