C3.ai (NYSE: AI) stock presents investors with a serious dilemma.
One part of C3.ai is an operations business that offers turnkey artificial intelligence (AI) solutions to organizations spanning multiple industries that help them capitalize on the benefits of the technology. However, investors must also contend with the financial C3.ai, an entity dealing with considerable financial losses and other concerns.
Hence, the question for investors is which part of this business should drive investment decisions in the SaaS stock. Let's take a closer look.
C3.ai from an operations standpoint
Admittedly, C3.ai looks like a dream for an AI-focused growth investor. The company is an enterprise software company that can bring AI capabilities to an organization by multiple methods.
Its enterprise AI offers more than 40 industry-specific solutions to meet what it calls business-critical needs. Indeed, companies from a variety of industries have incorporated C3.ai software into their operations.
In the past, it was particularly strong on the oil and gas side, especially in its relationship with energy company Baker Hughes.
As the Baker Hughes collaboration appears to have become less significant, C3.ai has pivoted to its other clients and the 71 other organizations that signed agreements with the company in the last quarter alone. That included 25 deals signed with state and local governments across the U.S.
Also, over 30% of bookings came from some part of the federal government, including three branches of the U.S. military. Considering such successes, it is likely hard for investors not to believe in C3.ai from an operations standpoint.
C3.ai financially speaking
Unfortunately, these new deals do not seem to have translated into a strong C3.ai from a financial point of view. For the first quarter of fiscal 2025 (ended July 31), revenue came in at $87 million, a 20% increase from year-ago levels.
This was an improvement from the 16% increase in fiscal 2024. It may also indicate that the company's transition from subscription to consumption-based pricing, which began in fiscal 2023, may stop weighing heavily on revenue growth.
Still, the higher revenue growth offers no relief to C3.ai's operating expenses. At $125 million for fiscal Q1, they are 43% higher than the company's quarterly revenue.
Shareholders should consider that stock-based compensation expenses, a noncash expense, accounted for $55 million of its operating expenses. From a cash perspective, that means its actual operating expenses are below revenues. Nonetheless, that still leaves C3.ai without an obvious path to profitability.