C3.ai (NYSE:IA) And Super microcomputer (NASDAQ:SMCI) both appear poised to benefit from the expanding artificial intelligence (AI) market. C3.ai develops AI algorithms that can be connected to an organization’s existing software infrastructure to accelerate and automate specific tasks. Super Micro Computer, more commonly known as Supermicro, is a leading producer of dedicated AI servers and server architecture.
However, investors have been much more optimistic about Supermicro, which is up more than 2,000% over the past three years. C3.ai’s stock has fallen more than 50% during the same period and is still trading nearly 30% below its IPO price. Let’s see if Supermicro will remain the better AI tech play than C3.ai for the foreseeable future.
Why couldn’t C3.ai impress its investors?
C3.ai primarily serves large government, industrial and energy clients. It generates more than 30% of its annual turnover in a joint venture with the energy giant. Baker Hughesbut this agreement expires in April 2025. It must renew this contract on favorable terms to continue growing over the next few years.
C3.ai’s revenue grew 38% in fiscal 2022 (which ended in April 2022), but grew only 6% in fiscal 2023. Its growth is slowed as it has faced fierce competition and intense macroeconomic headwinds that have caused many companies to limit their software spending. To deal with this pressure, C3.ai has rolled out more consumption-based plans, generating less consistent revenue than its subscriptions. This change limited its sales through fiscal 2023, but its revenue growth accelerated again through fiscal 2024 and was up 16% for the full year. Its growing customer engagement rates have repeatedly offset declining average selling prices for its services as it has expanded its consumption-based services.
For fiscal 2025, it expects revenue to grow between 19% and 27% as it gains more federal customers and deploys new tools for the generative AI market. That acceleration is promising, but the stock is not cheap, almost 10 times this year’s sales. It is also not profitable under both generally accepted accounting principles (GAAP) and non-GAAP metrics, and it prioritized the development of its new generative AI tools over significantly reducing its net losses.
In short, C3.ai’s customer concentration issues, lack of profits, and high valuation have likely kept the bulls away as other AI stocks have soared over the past year. High interest rates also shed an unflattering light on C3.ai’s biggest weaknesses.
Why can’t the bulls get enough of Supermicro?
Supermicro has a smaller server market share than Dell Technologies And Hewlett Packard Companybut it mainly produces high-performance liquid-cooled servers that can handle complex tasks more efficiently than traditional servers.
This orientation made it an ideal partner for Nvidiawhich grants Supermicro access to its leading data center GPUs ahead of many of its largest…
