C3.ai: Strong Short Squeeze Potential
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Introduction
C3.ai (NYSE:AI) is a company that specializes in providing an enterprise artificial intelligence platform that allows companies to gain new insights into their business KPIs and the like. Developers can also develop their own AI software using C3.ai.
Artificial intelligence is the hot topic now that OpenAI's ChatGPT has made its appearance. The advent of ChatGPT has made investors aware of the potential of artificial intelligence. Google Trends shows how popular the keyword "ChatGPT" is over the past 3 years. As of January 2023, trends have risen sharply. And if we compare this to the share price of C3.ai we see a similar correlation, the share price rose sharply from $10 to $33 (230%+ return). The emerging popularity of artificial intelligence may serve as a catalyst for C3.ai's share price.
Popularity of ChatGPT (Google Trends)
I expect AI stock price to rise due to the following catalysts:
- The high short % of float suggests a possible short squeeze.
- 11 Analysts have revised their revenue estimates upward.
- In fiscal 2024, analysts expect revenue growth of 20%.
- A solid balance sheet and financial standing.
- The stock’s valuation is attractive at the current price level.
Strong Outlook, Attractive Balance Sheet
C3.ai is an enterprise AI software provider that offers various AI software and services as well as the ability to develop their own AI applications. The C3 AI Suite is their main program in which AI applications are available such as applications for predictive maintenance, fraud detection and supply chain optimization. Businesses can also develop their own application in a development environment. C3.ai has major customers such as Shell, U.S. Air Force, Baker Hughes, Department of Defense, Engie, Raytheon Technologies and the like.
In the third quarter of fiscal 2023, C3.ai saw a lot of interest in their C3 AI solutions. The business segment has been improving since mid-2022 says CEO Thomas M. Siebel. C3.ai has transformed to a consumption-based pricing model which has allowed it to expand its partner ecosystem and business pipeline.
FY23-Q3 Highlights (C3.ai Investor Presentation)
There were several successes last quarter. C3.ai and Google Cloud won 8 new customers and discovered 291 business opportunities. C3.ai and AWS renewed their partnership and discovered 75 new opportunities, 41 of which are already highly qualified. The list of new customers, new opportunities and successes is listed in its entirety on their investor relations website. I see these successes as strong growth catalysts for the near future.
For fiscal 2023, C3.ai expects revenue growth between 4% and 5%. Analysts are also excited about the outlook, as 11 analysts have revised their expectations upward. For fiscal year 2024, they expected solid revenue growth of 20%. C3.ai expects to be free cash flow and non-GAAP positive at the end of fiscal 2024. The company isn’t cash flow positive currently. In fiscal 2022, free cash flow was negative at $91 million, but with currently $772 million cash and $0 debt, investors certainly need not worry. The balance sheet is solid.
Short Squeeze Potential
Interestingly, investors have particularly poor expectations for C3.ai. With a percentage float short of as much as 26%, this presents opportunities for long investors and risks for short investors. A short squeeze could occur, as happened with GameStop (GME) in 2021. GameStop's short interest % of float was over 300%, buying call options and shares sent the stock soaring. Short sellers struggled and closed their short positions en masse, sending the stock up as much as 30x.
