Oppenheimer’s Favorite Stocks For Next 12 Months: Top 32 Stock Picks

15. C3.ai, Inc. (NYSE:AI)

Share Price Upside: 16%

Number of Hedge Fund Investors In Q2 2024: 18

Average Analyst Share Price Target: $28.39

C3.ai, Inc. (NYSE:AI) is a software company that allows users to develop and deploy applications along with managing their customer relationship management, supply chain, and other business processes. Despite having rebranded itself recently to capitalize on Wall Street’s fervor for AI stocks, C3.ai, Inc. (NYSE:AI)’s story is mixed as while the firm has somewhat delivered on the growth aspect of its business valuation, it has nevertheless left a lot to be desired on the cost control front. In its latest fiscal quarter, C3.ai, Inc. (NYSE:AI)’s revenue grew by 20% annually, and as management was keen to point out during the earnings call, the quarter also accelerated revenue growth over the previous three quarters’ 11%, 17%, and 18% annual growth. However, this growth also came at the expense of higher operating costs, which jumped by 11% annually. C3.ai, Inc. (NYSE:AI) is currently transitioning into a pay per use business model, and this might have affected its subscription revenue which marked a 41% annual growth during the quarter a marked jump over the previous quarter’s 23%. Oppenheimer is bullish on C3.ai, Inc. (NYSE:AI)  primarily because of its platform level support for ChatGPT.

However, Bireme Capital isn’t. Here’s what it had to say during the Q4 2023 investor letter:

“Our final new short position is in a company called C3.ai. Originally named “C3 Energy,” C3.ai has changed its name multiple times based on whatever hot new trend they were supposedly capitalizing on. The “energy” theme was about smart grid and cap-and-trade. Then the firm changed its name to “C3 IoT” to attempt to capitalize on the Internet of Things buzz. After that trend fizzled out, the moniker was altered once more, with the company capturing the “AI” ticker in December 2020 – a savvy move if it wants to sell stock to credulous investors, but irrelevant to its business prospects. As Kerrisdale put it, the company is a “minor, cash burning consulting and services business masquerading as a software company.”

The company incinerated $200m last year and is set to burn more cash in this one. They may grow mid-teens this year after just 5% growth in FY 2023, but there is really no comparison to truly fast growing software businesses like SNOW (33% growth this year), Gitlab (31%), and Datadog (26%).

With an EV/sales multiple of 9x, we think the stock is grossly overvalued.”