In many ways, C3.ai (AI) can be seen as a much cheaper (from an investor’s perspective) version of Palantir (PLTR), with much more room to grow the amount of revenue that it obtains from the Pentagon.
Given these points, I believe that AI stock can eventually emulate Palantir by capturing the Street’s affections and rallying tremendously.
The Similarities Between C3.ai and Palantir
Both companies have developed platforms that enable companies and government agencies to integrate AI into their operations. Additionally, both firms have produced software that performs this function and is tailored to specific industries. For example, C3.AI, in partnership with Baker Hughes, has created AI software tailored to the oil and gas sector. And Palantir’s AI software for auto dealerships allows these businesses to “Use AI to proactively address customer vehicle issues and streamline the repair process by leveraging data-driven insights and expert knowledge.”
Both firms also do business with the Pentagon. Of course, Palantir is famous for generating huge amounts of revenue from the Department of Defense. But C3.ai has also made some significant deals with the Pentagon. For example, the company recently, in partnership with Amazon (AMCN) and Google (GOOG,GOOGL), won a contract “to enhance the Department of Defense’s flight scheduling processes.” And back in December 2022, the firm received three orders to help the U.S. Missile Defense Agency utilize AI.
Finally, both companies are expanding rapidly as AI continues to proliferate in the public and private sectors. with Palantir’s revenue jumping 36% last quarter versus the same period a year earlier while C3.ai’s top line surged 26% year-over-year during its last reported quarter.
The Differences Between the Companies
As I alluded to previously, AI stock is much cheaper than PLTR stock. Specifically, C3.ai has an enterprise value-to-sales ratio of 6.4 times, while Palantir’s equivalent ratio is 67.6 times.
Also noteworthy is that Palantir is profitable at this point, while, C3.ai is still losing money. But the latter firm, like Palantir a few years ago, is moving closer to profitability. In fact, C3.ai’s net cash used in operating activities sank to $52.6 million last quarter from $83.7 million during the same period a year earlier. If it continues progressing at that rate, its businesses will be generating positive cash within two years. And just as Palantir’s shares soared after the company began generating meaningful profits, C3.ai’s stock can also jump after its operations start generating significant amounts of cash.
Finally, as I indicated above, Palantir is generating much more revenue from the Pentagon than C3.ai at this point. But as the Defense Department more fully embraces AI, C3.ai can greatly increase the amount 0of revenue that it obtains from the agency. What’s more, C3.ai could even take some of Palantir’s contracts from it by undercutting the larger company on price. Such discounts may very well greatly interest the Pentagon which, like the entire federal government, is becoming much more cost-conscious these days.
The Bottom Line on AI Stock
C3.ai’s shares are much cheaper than Palantir, but C3.ai, like PLTR, is growing rapidly amid the AI Revolution and moving quickly towards profitability. Additionally, C3.ai already has a foothold in the Pentagon and is well-positioned to obtain a great deal more revenue from the agency. For all of these reasons, I believe that AI stock is worth buying and could become the next Palantir over the longer term.
