Disruptive technologies and innovations, like Artificial Intelligence (AI) and quantum computing, have the potential to alter the business and social landscapes - and ultimately provide opportunities for investors to generate significant returns, as well.
With AI and quantum computing emerging as two of the most promising areas for future growth in tech - with AI already witnessing massive uptake, judging by the number of corporations striving to integrate it into their products and services - investors should keep an eye on shares of related companies like C3.ai (AI) and IonQ (IONQ). Both of these disruptive tech companies have skyrocketed this year, easily outperforming the S&P 500 Index ($SPX) by a significant margin.
But since these stocks have already gained quite a lot in value, let’s take a closer look to understand whether they're still a good buy near current levels.
C3.ai
C3.ai is an enterprise AI application software company. It provides fully integrated AI products, including the C3.ai platform. The company offers over 40 enterprise AI applications, enabling its customers to rapidly develop, deploy, and operate large-scale AI applications and take advantage of AI to improve their business processes.
Year-to-date, C3.ai stock has gained 175%, compared to a gain of 17.3% for the S&P 500.
Looking ahead, the spike in adoption of AI processes among enterprise users indicates market demand remains high and provides significant growth opportunities ahead.
During the Q4 conference call, C3.ai’s CEO Tom Siebel said, “Business inquiries are increasing, the opportunity pipeline is growing, demand is increasing. And C3.ai is well positioned to serve that increasing demand with our tried, tested, and proven AI platform, our applications, our global footprint, and our large global ecosystem.”
Investors should note that the company closed 126 agreements in fiscal 2023, up from 83 in the prior year. Impressively, the average sales cycle for new and expansion deals came to 3.7 months, down from five months.
In the fourth quarter of fiscal 2023, C3.ai released its generative AI solution to the market, and immediately closed three generative AI applications with large enterprises. Moreover, management highlighted that it is difficult to estimate the size of the addressable market for generative AI solutions, but hinted that it appears to be “extraordinarily large.”
Besides high demand, C3.ai will likely benefit from its diversified customer base. For instance, the company stated that the oil and gas sector accounted for 34% of total bookings in fiscal 2023. Federal, defense, and aerospace represented 29%. High-tech, energy and utilities, and manufacturing accounted for 13%, 11%, and 4% respectively. Meanwhile, other industries account for the remaining mix.
Overall, C3.ai is a pure-play AI company poised to benefit from solid demand for generative AI, a robust pipeline, and a diversified customer base. However, its stock has appreciated significantly, implying that the positives are already reflected in the stock price.
Given the valuation concerns, most analysts covering the stock remain unenthusiastic. Out of the 14 analysts covering AI, eight have a “Hold” recommendation, two analysts recommend “Strong Sell,” two analysts have a “Moderate Sell” rating, and two analysts have a “Strong Buy” rating. Meanwhile, analysts’ average price target of $27.18 is a discount of more than 11% from current levels.
With this in mind, investors should keep a close watch on this compelling AI stock and wait for a pullback to go long.
That opportunity might come sooner rather than later. C3.ai is set to report earnings after the market closes this Wednesday, Sept. 6 - and following its last quarterly report in late May, AI dropped more than 13% in one session.
IonQ
IonQ develops and provides access to several quantum computers of various quantum bit (qubit) capacities. While the future trajectory of the company depends heavily on the successful development and further commercialization of its computing systems, quantum computing tech is expected to change all industries, with applications from farming to banking to logistics. Given its vast growth potential, the total addressable market will likely be huge for IonQ.
As a leader in quantum computing and with the latest generation system, IonQ is well-positioned to capture a higher market share and grow rapidly - already reflected in growing demand for its current supply of computers. Moreover, it is focusing on scaling up its manufacturing processes to develop increasingly modular, more economical, and serviceable systems, which is encouraging.
Thanks to the increased demand for IonQ systems, the company is poised to deliver strong revenues in the coming years. At the end of Q2, the company had $32.2 million in bookings year-to-date and raised its full-year outlook to a range between $49 million and $56 million.
Looking ahead, IonQ is expected to benefit from the acceleration in the pace of adoption of quantum computers. Moreover, the advancements of its systems and growing commercial use cases bode well for future growth.
However, IonQ stock has risen over 421% year-to-date, suggesting that these positives are reflected in its price.
It's also worth pointing out that the quantum computing industry is nascent and has a somewhat higher degree of unpredictability. Also, the company will likely increase investments to support growth, potentially weighing on its margins and profitability in the short term.
With two “Strong Buy,” one “Moderate Buy,” and three “Hold” recommendations, IONQ has a consensus Moderate Buy rating. Further, analysts’ average price target of $17.80 is roughly in line with its current market price, implying that additional upside in IONQ remains capped from here.
Investors looking for a pure-play quantum computing stock could consider IonQ stock. However, as with C3.ai stock, a correction in price could provide a better entry point - suggesting this is a name for investors to keep on their watchlists for now.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
