Is now a good time to buy C3.AI stock?

When it comes to artificial intelligence (AI), smart investors know that there are many lucrative opportunities beyond big tech. A company that has emerged as a highly coveted name in the field of AI. C3.ai (AI 1.02%). Yet despite the company's growth, its shares are essentially flat through the first half of 2024.

Could now be a good time to jump on the underappreciated AI opportunity?

How is C3.ai performing?

C3.ai develops a number of enterprise software solutions that it sells to both the public and private sectors. The company has an impressive roster of strategic partnerships with cloud network providers. the alphabet, AmazonAnd Microsoft. Moreover, C3.ai works closely with high profile consulting company. Accentureas well as a defense specialist Raytheon.

AI Revenue (Quarterly) Data via YCharts.

The chart above illustrates some of the key financial metrics for C3.ai over the past several years. On the positive side, earnings are starting to show some meaningful acceleration.

However, some issues emerge when looking at the overall margin profile of the company. For the fiscal year ending April 30, 2024, C3.ai reported a gross margin of 57%. In comparison, the company's gross margin for fiscal 2023 was 68%.

Not surprisingly, declining margins have contributed to widening operating losses. Despite the company's new revenue growth, this growth has come at a heavy cost.

What does the competitive landscape look like?

C3.ai competes with other AI enterprise software developers including Palantir (PLTR 0.40%)Databricks, and Alteryx. Palantir has a large presence in the federal scene, working with several US defense agencies and other government agencies.

Additionally, as I mentioned earlier, Palantir's recent alliance with Oracle could unlock further growth in both the public and private sectors. On top of that, Palantir is consistently profitable. The company has now posted six consecutive quarters of positive net income.

This gives Palantir a high degree of operating leverage and an enviable level of financial flexibility. The reason is that the company is able to reinvest its profits back into the business and double down on research and development efforts as well as customer acquisition strategies.

Moreover, Databricks is one of the most valuable startups in the world. With the support of Microsoft investors, Nvidia, Sales forceAnd further, Databricks is well positioned to fend off competition in the AI ​​and data analytics markets.

Is now a good time to buy C3.ai stock?

C3.ai is an interesting company to analyze. On the one hand, the company is showing some real momentum and has proven it can compete in the AI ​​environment.

But on the other hand, the company's growth is coming at a high cost, and this dynamic doesn't seem to be changing. While management is guiding for annual revenue growth of 27 percent in its current fiscal year, it is also forecasting operating losses of up to $125 million.

As long as C3.ai continues to burn cash, I'm hard-pressed to see how the company can compete in the long run. Alternatively, competitors like Palantir are already consistently profitable, while Databricks has the luxury of strong institutional support from some of the tech sector's biggest constituencies.

At this point, I'm sitting on the sidelines when it comes to investing in C3.ai. I think there are more opportunities with established players in the AI ​​realm. While C3.ai is building a respectable business, growth investors have far better options.

A wise approach might be to monitor C3.ai's earnings calls and gauge whether the company is on track to profitability and continues to tap into its target markets. If that happens, there will be plenty of opportunities for investors with a long-term horizon to acquire the shares.