It's only February, but investors are already having a tough year. The technology sector is suffering the most with the Nasdaq 100 index down over 12% year to date. But history suggests ignoring short-term noise and taking a long-term view will yield the most positive results. So investors could use the recent dip as a chance to buy innovative companies at a discount.
First-of-its-kind artificial intelligence company, C3.ai (AI 0.12%), might be one candidate. There is a caveat, however: While its shares down 20% so far in 2022, they have lost 85% of their value since hitting their all-time high in Dec. 2020, so it's a volatile stock.
But one Wall Street firm stands behind the company's potential, indicating C3.ai stock could quadruple from today's price. Here's why.
Image source: Getty Images.
It's a trailblazer
Artificial intelligence (AI) brings boundless possibilities to the business world through its ability to complete highly complex tasks in a fraction of the time humans would need. For some technology companies, building AI models is part-and-parcel of doing business. Think about behemoths like Meta Platforms, Alphabet's Google, or even Upstart, which uses AI to originate loans for banks.
But that's not the case for most regular businesses. They don't have the financial resources, nor can they attract the specialized talent, to create technologies like AI in-house. That's the gap C3.ai fills by offering a suite of turnkey AI applications that can be customized to work within almost any industry in the world.
At 35%, the oil and gas sector is C3.ai's largest source of revenue. The sector is benefiting from AI models that help to reduce carbon emissions and predict costly equipment failures.
But the company is also recognized by some of the largest tech organizations in the world, including Microsoft, which is collaborating with C3.ai to accelerate the development of AI applications on its Azure cloud-services platform. So far, this partnership has led to over $200 million of new deals for the two companies.
Strong revenue growth but explosive customer growth
C3.ai isn't a profitable company yet, which is a key reason its stock has struggled, but it's doing all the right things to grow its business. Over time, it will likely achieve scale and deliver positive earnings per share. But for now, investors should be extremely excited about the company's performance based on other metrics.
It generated $92 million in revenue during fiscal 2019, and management expects the top line to reach $250 million in fiscal 2022. That change represents a compound annual growth rate (CAGR) of 39%, but the company's customer growth actually trounces that mark.
|
Metric |
Fiscal 2019 |
Fiscal 2022* |
CAGR |
|---|---|---|---|
|
Total customers |
21 |
104 |
89% |
Data source: C3.ai. CAGR = Compound Annual Growth Rate.
In addition, over the last 12 months, C3.ai has doubled the number of industries it serves to 14. And it has also significantly expanded existing agreements, Its deal with oil and gas giant Baker Hughes, for example, increased $45 million to a whopping $495 million. That one deal alone guarantees C3.ai $357 million in revenue over the next three and a half years.
Wall Street is on board
In Dec. 2021, Wall Street firm Needham maintained its buy rating on C3.ai stock and attached a price target of $103 per share. That represents 312% growth from its current price of $25.
But while Needham is the most bullish firm, it's certainly not alone. The consensus price target on Wall Street sits at $56.29, which is still more than double where the the stock trades as of this writing.
Those price targets might actually be conservative over the long term with the artificial intelligence industry set to top $360 billion by 2028. So when investors look back a few years from now, the recent tech sell-off might prove to have been a great opportunity to pick up C3.ai stock.
