The stock's enthusiastic reception is not surprising as it builds and operates enterprise-scale AI applications. Enterprise software has been one of the strongest sectors in the market, and investors are considerably excited about the potential of AI to make this software even more powerful. At the moment, the full use cases of AI are hard to fully understand, but it's likely to help companies process more data, make better decisions, and automate a variety of tasks. All of these translate into more profits.
C3AI was founded by Tom Siebel. Prior to C3AI, he had founded Siebel Systems in 1993 which created enterprise software applications for sales, marketing, and customer service. It was one of the fastest-growing companies in the 90s and best-performing stocks, growing to over 8,000 employees with 4,500 customers and $2 billion in annual revenue. Eventually, the company was bought by Oracle
Like Siebel Systems, C3AI's software primarily serves the enterprise market and helps companies process massive amounts of data and pulls insight out of it to improve operations, decision-making, and resource allocation. The company has customers in a variety of industries including aerospace, financial services, health care, retail and utilities. Initially, the product was designed for the energy industry - helping companies process data from sensors on projects to identify when equipment would break down.
The company was able to raise $700 million in the IPO which valued the company at $12 billion. Currently, it has a 71% growth rate and $157 million in revenue during the year. The company believes it has a massive opportunity given that the global IT market is worth $2.3 trillion. Within this market, big data, IOT, AI, and predictive analysis will form the next-generation of enterprise software, and c3AI is one of the leading companies in these emerging markets.
In terms of its stock price, the company clearly has massive potential. It shares characteristics with a lot of recent winners in terms of having a massive total addressable market, and a product that pays for itself in terms of improving efficiency. Additionally, it's likely that once it becomes integrated into a company's "tech stack" that reliance on it increases which translates into "sticky" revenue and pricing power.
However, the company is also clearly overvalued, so many of these positives are already reflected in the price. Given how overbought market is in terms of valuation and sentiment, investors should remain patient as a better entry point will likely emerge.