3 INTERESTING AI COMPANIES
1. C3.ai
C3.ai focuses on providing artificial intelligence applications and software solutions to enterprise (corporate) clients. These can be used for a variety of functions, including trend forecasting and risk assessment.
Although the company operates in a segment that investors can't get enough of, there have been numerous questions about the way it does business. It has an undeniable divestment problem, as more than 70% of its revenue comes from a single sector (oil and gas). This is compounded by the fact that more than 30% of revenues come from a single client, the leading oilfield services company Baker Hughes.
And this relationship may be under pressure. In April, short seller Kerrisdale Capital wrote a devastating report on the state of C3.ai's business. In it, the firm claimed C3.ai's relationship with Baker Hughes was "fundamentally impaired", with the client in particular reducing its commitments to AI. In addition, it accused C3.ai of using recent price adjustments and accounting jiu-jitsu to cover up operational shortcomings.
The company quickly refuted many of Kerrisdale's allegations. However, in the eyes of many investors, the damage has already been done - the stock has not recovered from the short-seller attack.
C3.ai, however, is running a highly loss-making business despite its effective involvement in the AI trend. Since going public in 2020, C3.ai has posted a net loss in nearly every quarter, and on an annual basis, that deficit has widened to more than $192 million in fiscal 2022 from a deficit of nearly $56 million in 2021. This is a stock I'd be wary of right now.
2. UiPath
UiPath specializes in a field called robotic process automation (RPA). This basically means that it programs and designs machines to perform tasks that a human would struggle to perform or that would generally be disadvantageous to a human.
Its somewhat unimaginatively named UiPath Business Automation Platform promises to help businesses address their "automation needs every step of the way".
This approach seems to be resonating with customers. The company's revenue has been snowballing, climbing from $148 million in fiscal 2019 to more than double that the following year and then skyrocketing to just over $1 billion in fiscal 2023.
Staying on the cutting edge of RPA and building robots requires a large financial commitment, so like C3.ai, UiPath typically shows a loss. Unlike its peers, however, those losses are coming down - the net loss in the fourth quarter was less than $28 million, a much better number than the more than $63 million in the same quarter of 2022.
The company had a very successful IPO in 2021, raising over $1.3 billion. It's been relatively careful with cash - it had a pile of greenbacks in its coffers of $1.4 billion at the end of January. At the same time, its debt was relatively low and manageable, with $56 million in long-term borrowings.
So it has a long way to go, and in the meantime, it offers advanced solutions in a process (automation) that should be increasingly popular among businesses seeking savings. UiPath stock is not a bargain given its valuation, but the company certainly has significant potential and more than adequate financial resources. As such, it is worth considering as an investment.
3. Schrödinger
Schrödinger seeks to move the world forward through experimentation - using AI technology for its software platform to help pharmaceutical and biotech companies with drug discovery.
This is a crucial process, as an effective drug targeting a persistent or debilitating medical disorder can generate billions of dollars in revenue for its developer. Schrödinger's platform essentially introduces a monstrous computational brain into the process, giving clients a big head start on discovery.
It's a compelling proposition, and Schrödinger's revenue is growing steadily as a result. However, biotech/pharmaceuticals may be just the first of many customer bases for the company, as its technology can be adapted to support processes in other industries. Schrödinger is admirably aware of this and is currently focusing on sectors such as aerospace, semiconductors and energy.
True to its nature as an AI company, the young Schrödinger does not yet offer the comfort of conventional profitability. But its losses aren't catastrophic and have been worse - $27 million of red ink in its last reported quarter was the lowest in five quarters. At the same time, sales continue to head north, improving 23% year-over-year (to nearly $57 million) in the quarter.
Any company with an attractive product that has excellent potential for significant expansion is a serious candidate for a good stock portfolio. Schrödinger certainly belongs in this category.