For multiple quarters, C3.ai (AI 2.97%) has failed to show that it can generate any serious revenue growth, despite the opportunities it possesses in artificial intelligence (AI). The company provides AI solutions for a wide range of industries, but investors have been less than impressed with its results — at least until recently. In its last fiscal quarter, the company hit record numbers and posted impressive quarter-over-quarter growth. And that led to a surge in its share price.
But was that performance good enough for investors to start viewing C3.ai as a no-brainer buy?
C3.ai’s revenue grew by 20% in Q4
On May 29, C3.ai posted year-end numbers for its fiscal 2024, which ended April 30. And during that fiscal fourth quarter, its revenue rose 20% year over year to $86.6 million. It was also up 10% from fiscal Q3, when C3.ai’s top line came in at $78.4 million. One of the concerns I have had about this business in the past is that while it was growing, its sales weren’t exactly taking off, despite the hype around AI. There’s definitely more evidence of faster growth now.
AI Revenue (Quarterly YoY Growth) data by YCharts.
The company projects that in its fiscal 2025, its revenue will land within a range of $370 million and $395 million. At the midpoint, that would amount to a rise of 23%, which would suggest a further acceleration in top-line growth.
The downside is that management isn’t expecting C3.ai’s bottom line to show any improvement. For this fiscal year, it projects an adjusted operating loss of between $95 million and $125 million. That’s deeper than the $94.9 million loss it posted in fiscal 2024, which was in turn worse than the $68.1 million operating loss it recorded in fiscal 2023.
While C3.ai’s business has been growing, its losses have been rising, too. That’s something investors should be keeping a close eye on.
Is there a lot more upside for the stock?
Investors have been buying up C3.ai stock in the wake of the strong report. Over the past month, shares are up by more than 27%. At around $31, the stock still has a long way to go to get back to its 52-week high of $48.87. Analysts, however, aren’t overly bullish about its prospects. Their consensus price target is just over $31, which would suggest that the stock is already fairly valued.
What may play into its favor, however, is that at a price-to-sales multiple of 12, its valuation is attractive compared with similar tech stocks such as Palantir Technologies and ServiceNow.
AI PS Ratio data by YCharts.
Why I still wouldn’t buy C3.ai
C3.ai’s fiscal Q4 revenues looked much better than I expected. But the company’s rising losses are still a cause for concern. If top-line growth isn’t translating into improvements on the bottom line, that suggests the company is having to spend a lot of money to chase that growth — something it shouldn’t have to do if its products and services are truly game-changing for businesses.
Until this AI company can prove that it can grow its business without incurring deeper losses, I’d hold off on buying the stock, as there’s still plenty of risk here for investors. While C3.ai does appear to be doing better, it still has a long way to go to prove that it has a sustainable business model.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies and ServiceNow. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.