Nvidia, Microsoft and Amazon are leaders in artificial intelligence (AI), but this stock should not be overlooked

By | April 3, 2024

Nvidia, MicrosoftAnd Amazon are stocks that investors typically associate with artificial intelligence (AI). Each company is developing the technology in its own way to take a leading position in this emerging industry.

Nvidia makes the most powerful graphics processing units (GPUs) for AI workloads in the data center. The company is worth $2.2 trillion, with $1.5 trillion added in the past year alone thanks to rising demand for those chips.

Microsoft invested $10 billion in ChatGPT developer OpenAI last year and is using the startup’s latest GPT-4 models to incorporate AI across its entire product portfolio. Applications like Word and Excel now come with an optional AI assistant called Copilot, and developers can access advanced AI models on the Azure cloud platform to build their own applications.

Amazon, on the other hand, is trying to dominate the three core layers of AI: the company designs its own chips, builds its own large language models (LLMs), and develops its own AI applications. Additionally, Amazon is also using AI on its e-commerce platform to boost sales and help advertisers reach more customers.

A digital representation of a computer chip with AI in the center, on a blue background.A digital representation of a computer chip with AI in the center, on a blue background.

Image source: Getty Images.

Investors may be overlooking a smaller AI stock

Nvidia, Microsoft and Amazon have been members of the $1 trillion club for years. They are largely owned directly by investors, but also indirectly because they are part of the S&P500 Table of contents.

C3.ai (NYSE:AI) isn’t nearly as well known, but it was the world’s first enterprise AI company when it was founded in 2009. It delivers AI-as-a-service by providing companies with advanced, turnkey AI applications to accelerate technology adoption.

C3.ai is only worth $3.1 billion at the time of writing, but considering that AI could add trillions of dollars to the global economy based on Wall Street’s early predictions, this small company could be poised in the long run could lead to significant growth. This is why investors may want to buy into the C3.ai story now.

Perfectly positioned for the AI ​​revolution

C3.ai has designed more than 40 ready-to-use AI applications for 10 industries, all of which can be customized to the needs of individual businesses. For the financial services industry, C3.ai’s anti-money laundering tool helps banks identify three times more suspicious transactions than traditional detection methods. Likewise, the smart credit application reduces the amount of time it takes to review and approve a potential borrower by 30%.

Oil and gas companies use the C3.ai reliability suite to monitor thousands of equipment to predict potential failures, reducing costs and preventing environmental disasters.

C3.ai also offers a generative AI tool for businesses to help them get maximum value from their data. It is available on leading cloud platforms such as Amazon Web Services and Alphabet‘s Google Cloud, and allows companies to connect an LLM of their choice to tailor it to their specific needs. It can be used as a virtual assistant or as a powerful analysis tool.

In the recent Q3 2024 (ended January 31), C3.ai had 445 customer engagements, representing an 80% year-over-year increase. The company sells its applications through its own channels, but also partners with Amazon Web Services, Microsoft Azure and Google Cloud to sell them jointly. More than half of the 50 deals C3.ai closed during the quarter were with the support of its partners.

C3.ai’s revenue growth is accelerating again

Nearly two years ago — at the start of C3.ai’s 2023 fiscal year — the company told investors it was changing its revenue model. The company wanted to move away from subscription-based pricing because it involved lengthy negotiations, which meant customer onboarding was a slow process. Now it operates on a consumption model, so customers only pay for what they use, giving them a faster sign-up process and more flexibility.

C3.ai warned investors that the transition would lead to a temporary slowdown in revenue growth as it worked with customers to scale their spending under the new model. The graph below shows the decline in the growth rate over the entire fiscal year 2023.

A graph of C3.ai's quarterly revenue and growth rate from the first quarter of FY 2023 to the recent third quarter of FY 2024. A graph of C3.ai's quarterly revenue and growth rate from the first quarter of FY 2023 to the recent third quarter of FY 2024.

A graph of C3.ai’s quarterly revenue and growth rate from the first quarter of FY 2023 to the recent third quarter of FY 2024.

However, as predicted by management, revenue growth is now accelerating again. In the third quarter, revenues reached a record high of $78.4 million, up 18% – the fastest growth in more than a year. According to C3.ai’s financial models, growth should continue to accelerate in the future.

Why C3.ai stock is a buy now

Investors should be aware that C3.ai is not yet profitable. The company lost $72.6 million in the third quarter, although that figure fell to $15.8 million on a non-GAAP basis, which excludes one-time and non-cash expenses such as stock-based compensation. That, combined with the slowdown in revenue growth, are the main reasons why C3.ai stock is trading 83% below the all-time high hit during the 2020 tech frenzy (although it was heavily overvalued at the time).

C3.ai has more than $723 million in cash, equivalents and short-term investments on its balance sheet, so it can continue to absorb non-GAAP losses of that size for years to come. However, the company will ultimately have to prove to investors that it can be profitable, and the consumption model should help with that by reducing customer acquisition costs.

That said, C3.ai has incredible potential. CEO Thomas Siebel likens AI to the dawn of the internet and the smartphone, and Wall Street forecasts suggest the technology could add anywhere from $7 trillion to $200 trillion to the global economy over the next decade.

C3.ai stock could deliver a substantial upside if it can capture even a fraction of that value. Plus, business is currently on the rise, meaning this could be an ideal time to buy C3.ai stock.

Nvidia, Microsoft and Amazon are all fantastic AI stocks to own, but investors looking to diversify beyond these popular names may be glad they chose C3.ai for the long term.

Should you invest $1,000 in C3.ai now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends C3.ai and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.

Nvidia, Microsoft and Amazon are leaders in artificial intelligence (AI), but don’t forget about this stock. was originally published by The Motley Fool

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