C3 AI Announces Launch of C3 Generative AI Product Suite
C3.ai can grow much faster than it is right now, but Nvidia is clearly the stronger of the two. What makes Nvidia a much better business is evident by looking at the profit it generates from sales of its products. Over the last year, Nvidia converted $0.31 of every dollar of revenue into a net profit. Meanwhile, C3.ai produced a net loss of $261 million on $274 million of revenue. Therefore, I believe the market hype for everything AI is still inflating C3.ai’s valuation — and its management is trying to keep that fire alive by mentioning “generative AI” more than 60 times during its latest conference call. But if we tune out that near-term noise, we’ll notice its business isn’t that impressive, its customer concentration issues are worrisome, and its valuation is too high.
Generative AI is an innovative technology that helps generate artifacts that formerly relied on humans, offering inventive results without any biases resulting from human thoughts and experiences. C3.ai is currently valued at around $3.3 billion, which is more than 10 times the $295 million to $320 million in revenue it’s projected to make in FY2024. A company’s enterprise value-to-revenue ratio alone doesn’t tell the whole story, but C3.ai’s is high for a company only expected to grow revenue by 11% to 20%. Rallies like we’ve seen with C3.ai usually come with skepticism as potential investors worry about having missed the train and invest at an inopportune time (like right before a huge price drop). While that’s a fair thought, let’s dive into whether it’s truly too late to buy high-flying C3.ai stock. On the heels of the AI hype, many AI-focused companies and companies dealing with AI in any capacity saw investors flock to their stock, skyrocketing values in a matter of months.
C3 AI releases 28 domain-specific generative AI models
Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. C3.ai trades at a 30% discount to its IPO price, but its enterprise value (EV) of $3 billion is still 10 times higher than its projected sales for fiscal 2024. That EV/revenue ratio is arguably too steep for a company that expects 11%-20% revenue growth. Based on the midpoints of C3.ai’s guidance, it expects to post negative operating margins of 45% in the second quarter and 28% for the full year as it ramps up its marketing investments in its generative AI solutions.
The TPU has been an interesting one from a research standpoint, given that in the past every time I asked what percentage of AI workloads were run on the TPU, it was a very small number for enterprise customers. I met with a few customers and heard anecdotally that the TPU was “sold out.” I will keep asking every year to see what is really happening with the TPU. I do believe that internally, for consumer Google and ads, the TPU is doing a lot. The new Cloud TPU v5e delivers up to 2x higher training performance per dollar and up to 2.5x better inference performance per dollar for LLMs and generative AI models compared to its predecessor, the Cloud TPU v4.
While some may point to this as business picking up, it just marks the one-year point of moving to the usage-based billing model versus a subscription one. This transition caused C3.ai to post negative revenue growth for most of fiscal year 2023, so it shouldn’t be too surprising that C3.ai appears to be growing due to easy comparisons. The C3 Generative AI Product Suite embeds advanced transformer models with C3 AI’s pre-built AI applications accelerating customers’ ability to leverage these models across their value chains. C3 Generative AI is a unified knowledge source that enables enterprise users to rapidly locate, retrieve, and act on enterprise data and insights through an intuitive search and chat interface. Text Generation involves using machine learning models to generate new text based on patterns learned from existing text data.
Access to the appropriate enterprise data is the essential ingredient for generative AI for business. A financial services company, for example, doesn’t need a generative AI system that learns only from public data. It needs a system built for its domain (read The Significance of Domain Models) that generates comprehensive insights from its proprietary data. That might include deposit trends, information about its loans, and so on. Generative AI for the enterprises also incorporates public data via Large Language Models (LLMs).
Founder of the DevEducation project
A prolific businessman and investor, and the founder of several large companies in Israel, the USA and the UAE, Yakov’s corporation comprises over 2,000 employees all over the world. He graduated from the University of Oxford in the UK and Technion in Israel, before moving on to study complex systems science at NECSI in the USA. Yakov has a Masters in Software Development.
However, one key concern that many investors (including myself) have with C3.ai is its unprofitability. As the world becomes more computerized, it drives up demand for high-powered chips and software. Yakov Livshits Salesforce, which is expected to increase revenue 11% this year, trades at 6 times that forecast. UiPath, which is expected to grow its top line by 20% this year, also trades at 6 times that estimate.
This explains why Nvidia’s business is growing faster, is more profitable, and is generating better returns for shareholders. The one area of strength for C3.ai has been U.S. defense, where bookings jumped 39% year Yakov Livshits over year in the most recent quarter. Department of Defense is “extensive and rapidly expanding.” That suggests more growth is ahead, but the rest of the business is clearly not performing up to expectations.
C3 AI Releases New C3 Generative AI Suite
While I’m OK with investing in unprofitable companies, they usually grow much faster and don’t have that large of a hole to dig themselves out of. Additionally, they aren’t dependent on one or two industries like C3.ai is. With C3.ai’s stock not meeting any of those qualifications, I think it’s best to avoid it until margins improve. Fewer gross profit dollars make it even harder to turn a profit, but C3.ai has reversed this trend, as operating expenses fell 5% in the fiscal first quarter. However, that didn’t fully offset the gross profit decline, so C3.ai’s loss from operations ticked up 1% from last year to $74 million.
- Based on the midpoints of C3.ai’s guidance, it expects to post negative operating margins of 45% in the second quarter and 28% for the full year as it ramps up its marketing investments in its generative AI solutions.
- Scale and performance have improved compared to the prior generation, with 3x faster training and 10x greater networking bandwidth.
- A company’s enterprise value-to-revenue ratio alone doesn’t tell the whole story, but C3.ai’s is high for a company only expected to grow revenue by 11% to 20%.
- All are available from the company or in the Google, AWS and Microsoft Azure marketplaces.
- Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
- The better approach would be to determine how much you want to invest in the company and then dollar-cost average your way into a stake over time.
Google was first to market with a managed Kubernetes service in 2014 with GKE. The new GKE Enterprise combines the best of GKE and Anthos (Google’s cloud-centric container) into one platform with a unified console. GKE Enterprise edition Yakov Livshits includes a new multicluster feature that enables grouping similar workloads into dedicated clusters. Each cluster can have configurations and policy guardrails to isolate sensitive workloads and delegate cluster management to other teams.
The enterprise AI software developer still has a lot to prove.
In episode 108 of the Acceleration Economy Minute, Kieron Allen discusses C3 AI, a company on our Top 10 AI/Hyperautomation Shortlist and its latest generative AI products. The AI revolution is in full force, with businesses everywhere looking to Generative AI to transform their organizations. This next step in how humans interact with computers promises to upend virtually every industry on the planet. Prevent LLM-caused data and IP leakage with enterprise security applied to user queries and separation of LLM from enterprise knowledge base. Enable the ability to trace back to source documents and data for every insight that is generated.