C3.ai (NYSE: AI) has benefited significantly from the excitement surrounding artificial intelligence (AI). It provides companies in a wide range of industries with turnkey AI solutions, making it easy for them to deploy next-gen technologies.
But despite the promising path ahead for the business with respect to AI, it has been anything but a smooth ride for the stock, which is down big this year. And while the business has been growing, there are plenty of risks involved with investing in it today.
C3.ai recently posted its fiscal third-quarter earnings, and there are three numbers from that report you should pay close attention to and consider before you decide to invest in the stock.
For the three-month period ending Jan. 31, C3.ai’s sales rose by 26% to $98.8 million. While that’s a strong rate of growth, it marks a slowdown from the previous period. This is important because the big allure of investing in C3.ai is for its promising growth prospects, specifically due to AI.
This isn’t a massive slowdown, but there are concerns that AI-related spending may slow in the near future. Fears about overspending on AI rose earlier this year when Chinese company DeepSeek unveiled an AI chatbot that was comparable to other ones available on the market, including ChatGPT, despite supposedly costing much less to develop.
If companies scale back on AI investments, that could be bad news for C3.ai as its growth rate may continue to slow, and that would make the stock a less appealing investment.
C3.ai isn’t profitable yet and there’s little reason to expect that it will be anytime soon — hence the importance of its growth rate being strong. That would at least give investors a reason to justify the high expenditures. Last quarter, its operating loss totaled $87.6 million, up from a loss of $82.5 million in the prior-year period.
Previously, C3.ai CEO Tom Siebel said it was a “mathematical certainty” the company would move toward profitability with scale, but that isn’t happening. And this is something investors shouldn’t overlook. If C3.ai has difficulty in getting into the black, question marks will remain about just how viable and sustainable the business is. Without a path to profitability, it may be difficult to see this as a good company to invest in.
A company that’s not generating positive cash flow will inevitably need to raise funds to grow its operations, and that is usually the result of issuing stock, which dilutes shareholders and which can cause the share price to plummet.
