Should I Buy C3.ai (AI)? Finance YouTuber Analysis

The analyst recommends staying away from C3 AI, noting that its operations do not justify its $3 billion market cap. Despite a six times enterprise value to sales multiple, the company is not profitable, and operating losses are worsening as revenue grows, indicating an unsustainable trend and lack of operating leverage.

“Absolutely one that I would stay away from right now.”

The YouTuber sees C3.ai as a rebound opportunity after a 30% crash. He describes it as an end-to-end platform for business AI applications with consistent 20%+ revenue growth and major partners. If it reaches its forecasted 25% sales growth this year and 21% next, its current 7.5x price-to-sales multiple would be a 'steal' compared to past multiples, offering a respectable 24% upside.

“if it can reach that forecasted rate of 25% this year and 21% growth next it would make the current price of 7 and a half time sales seem like a steal compared to those earlier multiples of N9 and 10 or higher rebounding back to that average valuation of 9.9 times on the price to sales basis wouldn't be the return we saw in those first three stocks but still a very respectable 24% over what it could be just in a few months”

The YouTuber is buying C3.ai, believing its valuation is good despite not fully benefiting from the AI boom yet. The company is adding AI applications and enterprise clients, growing out of cash flow problems, which has led to strong results. With 20% revenue growth expected this year and next, the YouTuber believes it could turn around his current loss on the stock.

“valuation is very good here and all it takes is one good earnings report to take this one Higher”

The analyst is holding his 500 shares of C3.ai, noting its upcoming earnings report. He points to a good valuation at 7.6 times expected sales and forecast 20%+ revenue growth, with enough cash flow despite current losses to support future growth.

“I've got 500 shares here one of my larger positions in AI will hold for that growth”

The YouTuber suggests C3.ai could be a surprise to the upside on the new AI software trend, despite being a 'constant disappointment.' He implies a speculative buy ahead of its September 4th earnings report, aligning with the broader shift from AI infrastructure to software services.

“The stock has been a constant disappointment but could surprise to the upside on this new trend.”

The YouTuber recommends C3.ai as a short squeeze candidate due to 35% of its float being shorted and 53% held by institutional and insider investors, limiting available shares. Despite past losses and slowing revenue growth, the company has beaten expectations in recent quarters, showing a turnaround in its AI applications and enterprise client growth, which could surprise shorts.

“C3 beat expectations easily in the last two quarter seeing the shares surge as a result and even as that sales growth has slowed it's still a solid 23% a year and the company is benefiting from Unstoppable secular growth in generative AI.”

The YouTuber recommends C3.ai despite its recent underperformance, citing its strong future in developing AI products across various industries like supply chains, CRM, and defense. The company recently completed a project with the US Air Force and is expected to see rising revenue, trading at a relatively cheap price-to-sales ratio.

“I'll admit c3.ai ticker AI has been a dog since last year's peak in AI stocks but has a strong future ahead in this theme C3 isn't just a play on a specific industry but is developing products across industries.”

C3.ai's shares are down significantly, and while its 15% sales growth is modest for an AI stock, the company is expected to reach profitability next year. The analyst believes a surprise announcement from management about achieving profitability earlier than expected could act as a catalyst to boost the shares.

“if management says hey you know we're getting some strong demand for our AI software that's going to move us up into profitability earlier than expected I think that could be the Catalyst of that investors need to push these shares up a little bit more”

The analyst suggests accumulating C3.ai if it experiences further declines, viewing the current pullback as a temporary 'air out of the bubble' rather than a bursting. He emphasizes the long-term potential of AI and advises investors to have confidence in buying these stocks on a multi-year theme.

“if that air temporarily comes out of this AI bubble I want you not to forget the 43 most expensive internet stocks crashed 80 percent in the.com bust over just two decades ago”

The YouTuber suggests using a covered call strategy on C3.ai to generate a reasonable dividend and reduce risk. By selling out-of-the-money call options, investors can collect premium while still participating in potential upside, as long as the stock doesn't exceed the strike price. This strategy helps lower the cost basis and provides income.

“There is another way though to create a dividend on any stock you own AI stocks or otherwise and it's going to be using that same covered call strategy so just selling call options against a position to create that cash value and I'm going to show you how to do it much simpler than some of these synthetic call options and maybe a little bit less risk than what you'll find in some of these income ETFs”

The YouTuber owns shares of C3.ai but expresses concern about its valuation, trading at 14 times 2023 sales. He previously sold covered calls at a $40 strike price when the stock peaked in early April, indicating a cautious stance despite holding the shares.

“I do own the shares here but I did sell those covered calls at a 40 strike price back when they hid that early April Peak.”

The YouTuber advises caution with C3.ai, noting its significant year-to-date rally despite expectations for widening losses and an 8% drop in revenue. With only 3.4% sales growth expected, management will need to strongly justify its current expensive valuation of 9.5 times expected sales, especially given the negative market sentiment towards AI stocks.

“C3AI, ticker AI, is going to have to prove its 102% year-to- date rally when it reports earnings on Thursday.”

The YouTuber expresses strong skepticism about C3.ai, citing its history of changing business models to chase buzzwords, a lack of clear evidence for its AI product's efficacy, and a high valuation (15x sales) despite low revenue growth (6%) and significant operating losses. He also points to negative employee reviews and substantial insider selling by the CEO, suggesting it's a 'hype stock' that could be dangerous for new investors.

“Ich glaube aber auch, dass nicht jeder Hype positive Aktienrenditen bringt und das ganz viele Neulinge vor allem jetzt glauben einfach nur irgendeine ki-aktie zu kaufen und dann wird das schon durch den Deckel gehen und das genau das tatsächlich bei Aktien wie Nvidia der Fall sein könnte aber auch bei Aktien wie c3a der Fall sein könnte und mein Ziel ist es ja auch zu zeigen dass es hier genug kritische Punkte gibt mit denen man sich auseinandersetzen muss und wenn man am Ende zum Schluss kommt dass man das vielleicht einfach nicht einschätzen kann weil man das vielleicht vorher zu naiv gedacht hat dann ist das auch völlig okay dann können wir solche komplexen Aktien auch den institutionellen Anlegern überlassen die das vielleicht besser kennen Leuten überlassen die das Produkt aus der Praxis kennen oder auch den anderen die vielleicht am Ende auch recht haben aber ich glaube für Neulinge für Privatanleger für Leute die einfach nur auf den ki-hype setzen wollen ist das ja eine möglicherweise sehr sehr gefährliche Aktie.”