Founded in 1993 by Tom and David Gardner, The Motley Fool strives to make the world smarter, happier, and richer. Through their website, podcasts, books, newspaper column, radio show, and premium investing services, The Motley Fool helps millions of people achieve financial freedom. However, it's important to note that the opinions expressed in this free article may differ from The Motley Fool's Premium Investing Services. To access their top analyst recommendations, in-depth research, and other investing resources, consider becoming a Motley Fool member. Among the leading companies in the field of artificial intelligence (AI) investments, C3. ai (AI 4. 06%) consistently appears at the top of search results. With a name that clearly indicates its focus on AI, investors may assume they understand what the company does. However, it's crucial to consider some key facts about C3. ai's history that could impact one's decision regarding investing in the stock. Continue reading to discover important information about the company and whether it is worth buying today. C3. ai hasn't always been known by that name. In 2009, it was founded as C3 to assist clients in navigating carbon policies. Later, it changed its name to C3 Energy Management, focusing on helping clients optimize energy usage. Subsequently, the company transitioned to being known as C3 IoT, aligning with the popular investing buzzword "Internet of Things" in 2016. Finally, in 2019, C3 IoT rebranded itself as C3. ai to capitalize on the AI hype. While frequent name changes might arouse some concerns, they do indicate genuine shifts in the company's products and offerings, to some extent. C3. ai currently provides competitive AI solutions that can integrate into existing systems. Examining C3. ai's financial results might lead to confusion as to why a company operating in the booming AI industry is not experiencing significant sales growth. In the fourth quarter of fiscal year 2023 (ended April 30), C3. ai's sales grew by a mere 0. 1%. This can be attributed to the company's switch from a subscription-based billing model to a usage-based model. Billing clients based on product usage, rather than a flat annual subscription, aligns C3. ai's interests with its customers. However, it also means that during challenging economic times, clients might reduce their spending. The decision to change the billing model was announced in the first quarter of fiscal year 2023, so actual year-over-year comparisons will be visible starting from the second quarter of fiscal year 2024. Notably, the weak Q1 FY 2024 guidance compared to the full-year outlook reflects this change. Despite operating in a supposedly booming industry like AI, a 15% annual growth rate seems relatively low.

Moreover, C3. ai's valuation is quite inflated, with profitability being nowhere on the horizon. The company reported an astounding operating loss of $73. 3 billion in Q4, resulting in a 101% operating loss margin. Consequently, sales have become the primary metric for valuing the company. As seen from the chart above, C3. ai's valuation has surged since the beginning of the year. While the initial valuation of four times sales may have been too low, the current valuation of 17 times sales is likely excessive. Even if C3. ai managed to double its revenue without increasing costs (an unrealistic scenario), it would still not be profitable. Additionally, a 15% annual growth rate does not support such a high valuation when compared to other software companies growing at a faster rate with lower valuations than C3. ai. Considering these factors, it is evident that investors should steer clear of C3. ai's stock. While short-term performance may benefit from the hype surrounding AI investments, the company lacks the necessary growth potential to be a viable long-term investment. It should be noted that Randi Zuckerberg, former director of market development and spokeswoman for Facebook, and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool recommends C3. ai. The Motley Fool maintains a disclosure policy. The calculation of average return is based on all stock recommendations since the inception of the Stock Advisor service in February 2002. Returns as of July 30, 2023. Exclusive offers are available to new members only. The list price of Stock Advisor is $199 per year. Calculations for the time-weighted return are based on data since 2002, with volatility profiles derived from trailing three-year calculations of the standard deviation of service investment returns. Enhance your investing strategy with The Motley Fool. Gain access to stock recommendations, portfolio guidance, and more through The Motley Fool's premium services.