C3.ai Inc. needs to show “viral growth” before Oppenheimer’s Timothy Horan would recommend ownership of the artificial-intelligence-software provider’s stock.
He initiated coverage of C3.ai
AI,
shares with a perform rating Thursday, writing that the company may be a “pure play” on the hot trend of AI, but he said that’s not enough to warrant a bullish call at this stage.
“C3.ai is in the right place at the right time, as generative artificial intelligence (GAI) catalyzes a platform shift, which we believe will be as consequential as the internet,” Horan wrote, but noted that he’s waiting for “viral growth to ramp.”
Shares of C3.ai have roared more than 200% higher on the year, and with that backdrop, Horan said the stock’s “risk/reward is relatively neutral.”
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He added: “As fundamental analysts, we can’t move to an Outperform rating on C3.ai just yet, despite the long-term promise, without seeing a major step up in growth.”
Among Horan’s concerns is that it’s “uncertain how large the moat around its business model is.” Meanwhile, the company essentially didn’t show any year-over-year revenue growth in its last-reported quarter.
See also: C3.ai’s investor day is met with skepticism
C3.ai has made AI its focus, but the company is hardly the only player in the market, and it’s up against some storied competition. Horan pegs the market for generative AI at $5 billion next year, but he thinks that in the short run, “the spoils disproportionately sway toward [Microsoft] with infrastructure subsidies and proven proprietary large language models (LLMs)” that are running OpenAI’s ChatGPT-3.5 and GPT-4.
The company “could be pressured by growing competition from Microsoft
MSFT,
Google
GOOGL,
GOOG,
and others,” he added.
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