c3.ai, The Laughing Stock of A.I.

Summary

C3 AI, a company initially focused on software for industrial applications, has undergone several rebrands and shifts in focus, culminating in its positioning as an AI company. Despite the hype around AI, particularly after the release of ChatGPT, C3 AI's new generative AI product failed to meet expectations, showing no significant revenue impact. The company faces challenges with high R&D expenses, flatlining revenue, and a lack of differentiation in a competitive market. Although hyped by investors, including retail traders, concerns about its financial performance and future sustainability persist, raising doubts about its long-term success.

Takeaways

• 😀 C3 AI, founded by Tom Cybele, has undergone multiple name changes, initially starting as C3 Energy, then becoming C3 IoT, and finally C3 AI in 2019.
• 😀 Despite being positioned as an AI company, C3 AI's core business revolves around predictive maintenance and machine learning to aggregate customer data for industrial applications, not generative AI like ChatGPT.
• 😀 C3 AI went public in late 2020 with an IPO that saw its stock price soar, but it quickly crashed in 2022 along with the broader tech bubble.
• 😀 Following the release of ChatGPT, C3 AI's stock surged by 140%, driven by investor enthusiasm around AI, though the company’s actual business model is unrelated to generative AI.
• 😀 Tom Cybele promoted a new generative AI product suite in 2023, incorporating ChatGPT, but the product had little impact on C3 AI's financial performance or growth.
• 😀 C3 AI's massive operating losses raise concerns about its path to profitability, with research and development (R&D) expenses making up a significant portion of their revenue.
• 😀 Despite high gross margins, C3 AI struggles to achieve profitability due to high spending on sales, marketing, and R&D, with operating losses continuing to grow.
• 😀 The company’s software is costly and often requires significant customization for individual customers, leading to high R&D costs for tailoring solutions to specific industry needs.
• 😀 C3 AI faces competition from other companies like Palantir, Databricks, and Snowflake, which provide similar data aggregation and machine learning solutions.
• 😀 C3 AI has experienced difficulties landing new customers, as evidenced by renegotiations of minimum revenue guarantees with strategic partner Baker Hughes, and challenges in its partnership with Google Cloud.
• 😀 Tom Cybele has cashed out $600 million worth of his personal holdings since the IPO, further raising concerns about the company's future and whether it is more of a stock promotion than a viable business.

Q & A

What is the significance of C3 AI's IPO and its stock performance?

C3 AI IPOed in late 2020 at a $4 billion valuation. On the first day of trading, the stock price more than doubled, bringing the valuation to almost $10 billion, despite the company burning cash. However, its stock collapsed in 2022 along with the broader tech bubble, before surging by 140% after the release of ChatGPT in late 2022.

What does C3 AI actually do, and how has its business evolved over time?

C3 AI originally focused on creating software for smart grids to help utility companies track energy consumption. Over time, it pivoted towards IoT solutions for industrial sectors, offering predictive maintenance and analytics for equipment. In 2019, it rebranded to C3 AI, positioning itself as an AI company that uses machine learning and predictive analytics.

How did C3 AI leverage the AI buzz after the launch of ChatGPT?

Following the release of ChatGPT, C3 AI capitalized on the generative AI hype by announcing a new suite of generative AI tools, which integrated ChatGPT into their existing platform. This move aimed to capitalize on the growing investor excitement around AI, although the actual impact on their business has been questioned.

Why did C3 AI rebrand multiple times, and what were the reasons behind each name change?

C3 AI underwent multiple rebrands to better align with market trends and business focus. Initially called C3 Energy, it focused on smart grid software for utilities. After struggling in that market, it rebranded to C3 IoT to reflect its pivot to Internet of Things solutions. Finally, in 2019, it rebranded to C3 AI, positioning itself as a leader in artificial intelligence for industrial analytics.

What is the role of Tom Siebel in C3 AI's journey?

Tom Siebel, the founder of C3 AI, previously created Siebel Systems, a highly successful CRM software company sold to Oracle for $6 billion. Afterward, he started C3 AI, initially aiming to create software solutions for carbon emissions tracking before pivoting to industrial AI and predictive analytics.

How has C3 AI's financial performance been since its IPO?

Since its IPO, C3 AI has seen fluctuating financial performance. While its revenue grew initially, its operating losses expanded significantly. In the quarter ending July 31st, 2023, despite the launch of a generative AI product, their revenue declined, and operating losses increased to $74 million.

What challenges has C3 AI faced in generating consistent revenue growth?

C3 AI has struggled with customer acquisition and maintaining revenue growth. Despite rolling out new AI products, such as the generative AI tool, its revenue growth has flatlined, and even declined in some quarters. Additionally, their high research and development costs and niche use cases have hindered profitability.

What concerns exist about C3 AI's business model?

Concerns about C3 AI's business model include its high research and development expenses, which remain a significant percentage of revenue. Additionally, the company's generative AI product is seen as underwhelming and does not significantly differentiate it from competitors. Its reliance on expensive custom solutions for customers raises questions about long-term profitability.

What is the significance of C3 AI's partnerships with Baker Hughes and Google?

C3 AI's partnership with Baker Hughes was initially seen as a way to expand its reach in the energy sector. However, the deal was renegotiated twice with lower revenue guarantees, suggesting difficulties in selling its products. The partnership with Google, announced in 2021, was meant to integrate C3 AI's products with Google Cloud, but the strategic impact is unclear, especially given C3 AI's ongoing financial struggles.

How does C3 AI's generative AI product compare to other AI solutions in the market?

C3 AI's generative AI product, which integrates ChatGPT licensed from OpenAI, is positioned as a game-changer but has been criticized for being underwhelming. Similar AI tools are offered by competitors like Snowflake, which also license AI models from OpenAI, making C3 AI's solution not particularly unique or innovative in the broader market.