C3.ai (AI) reported sales of $72.4 million in the fiscal fourth quarter — in line with the higher end of its preliminary sales numbers. Sales growth was flat year over year. Is AI stock a buy now?
Subscription revenue was 79% of sales at $56.9 million. The company saw a loss of 13 cents per share, compared to a 21 cents loss a year ago. Free cash flow from business operations was $16.3 million during the quarter.
Shares broke out of a consolidation in March but pulled back below the 50-day moving average in April as the breakout failed. The stock surged 33% ahead of earnings on May 30 and is approaching a profit zone from a buy point of 30.92 on Tuesday.
For the fiscal year that also ended April 30, C3.ai had sales of $266.5 million-$266.8 million, above earlier views of $264 million-$266 million.
The enterprise AI provider expects sustainable profitability by the end of fiscal 2024. Analysts polled by FactSet expect 19% sales growth for the year ending April 2024.
Equally noticeable is AI rival and Google parent Alphabet (GOOGL) partner Gitlab (GTLB). On Tuesday, GTLB stock gapped up over 25% and cleared the 200-day moving average after strong first quarter sales. Sales rose 45% to $126.9 million while loss per share of 6 cents was a third of the 18 cents per share loss a year ago.
Gitlab is also an enterprise software maker and has partnered with Google Cloud for AI-assisted features for developers, security and operations. Shares hit an all time low in May. The Composite Rating of 36 clearly needs improvement.
AI Stock: Different Consumption Model
In December, AI stock changed its pricing model from subscription to consumption-based pricing.
The move brought the company in line with industry standards for software-as-a-service providers. The practice is common across Amazon.com’s (AMZN) AWS, Google parent Alphabet‘s (GOOGL) Google Cloud and Microsoft‘s (MSFT) Azure, as well as smaller players.
Consumption pricing works like an utility bill; that is, the higher the consumption, the pricier the service. Since AI customers will benefit from having access to an AI enterprise platform with unlimited use and developer licenses, the switch to consumption pricing could drive revenue growth, but not immediately.
CEO Thomas Siebel indicated that C3.ai was using the economic downturn to complete the switch, with profitability expected to grow in 2024.
Massive Artificial Intelligence Growth
Siebel sees AI applications hitting $600 billion.
That is far less than Cathie Wood’s prediction. The Ark Invest chief said in Ark Investment Management’s “Big Ideas 2023” report that AI could add $200 trillion to the economy by 2030.
Stock Surges On ChatGPT Success
AI stock skyrocketed in February when users successfully tapped OpenAI’s ChatGPT artificial intelligence app to generate answers, texts, emails and even books.
The ChatGPT app reached 100 million monthly active users in two months, beating popular apps like TikTok and Instagram. OpenAI’s partnership with Microsoft ChatGPT uses natural language to help users write emails, develop codes and finds answers for daily questions.
The Redwood City, Calif.-based company makes AI-enabled software applications that can be configured for different purposes. The software can make networks more reliable, detecting fraud, balancing inventory and demand, solving supply chain issues and increasing energy efficiency. It can also help defend against money laundering.
AI Stock IPO
The enterprise software stock popped on the first day it started trading in December 2020, an IPO that priced shares at $42 each.
The Composite Rating of 81 is adequately strong though the low 45 EPS Rating should caution investors. The near perfect 98 Relative Strength Rating indicates the stock’s superior performance compared to other stocks in the IBD database.
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