Better Stock AI: Oracle Vs. C3. have

Oracle (ORCL 1.11%) and C3. have (AI 0.62%) are two very different ways to invest in the booming artificial intelligence (AI) market. Oracle is one of the largest database software providers in the world, so it hosts a lot of data that needs to be analyzed by AI applications. Its cloud infrastructure platform also provides the computing power and storage to run many of these AI and other cloud-based applications. C3.ai is a smaller developer of AI algorithms that can be plugged into an organization’s existing software to accelerate, automate and optimize certain tasks.

C3.ai founder and CEO Tom Siebel previously founded Siebel Systems, a sales automation software vendor that Oracle acquired for $5.85 billion in 2006. Siebel founded C3.ai in 2009, and that new AI company went public in December 2020.

Image source: Getty Images.

C3.ai is growing much faster than Oracle. But over the past three years, C3 shares have fallen about 50% and are trading at a 45% discount to their IPO price. Oracle shares are up nearly 90% over the same period. Let’s see why the leading tech giant outperformed the big-growth newcomer — and whether it will remain the more attractive investment for the foreseeable future.

Differences between Oracle and C3.ai

Over the past decade, Oracle has transformed many of its on-premise database appliances and software into cloud-based services. It also expanded that cloud-based ecosystem with more enterprise resource planning (ERP) and cloud infrastructure services.

Much of that growth was driven by dozens of acquisitions — including data broker Datalogix, ERP leader NetSuite, cloud-based construction management company Aconex and health IT giant Cerner. That expansion has turned Oracle into a more diversified cloud software company and reduced its reliance on its slower-growing on-premises services.

C3.ai has a much narrower focus. Over the years, the company was previously known as C3 Energy and C3 IoT (Internet of Things) before shrewdly rebranding as C3.ai. But every interaction of that company continued to market the same machine learning and AI algorithms, which can either be plugged into an organization’s software or accessed as standalone modules.

C3.ai mainly serves large clients in the energy, industrial, financial and government sectors. However, it generates more than 30% of its revenue from a joint venture with the energy giant Baker Hughes (BKR -3.30%). That crucial deal, which will expire at the end of fiscal year 2025 (April 2025), has not yet been renewed.

Oracle is solidly profitable on a generally accepted accounting principles (GAAP) basis, but its non-GAAP earnings generally paint a clearer picture of its growth without the near-term noise from acquisitions, investments and stock-based compensation. C3.ai is still deeply unprofitable by both GAAP and non-GAAP measures.

Which company is growing faster?

From fiscal 2020 to fiscal 2024 (which ended in May), Oracle’s revenue grew at a compound annual growth rate (CAGR) of 8% as GAAP EPS grew at a CAGR of 5%.

Most of this growth was driven by cloud-based software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS) platforms, which accounted for 42% of the top line in the first quarter of fiscal 2025. Expected to grow in IaaS. revenues, already up 50% in FY2024, to accelerate again in FY2025 as the AI ​​market expands. It has also bought back about 6% of its shares over the past four years.

From fiscal 2024 to fiscal 2027, analysts expect Oracle’s revenue and GAAP EPS to grow at a CAGR of 12% and 21%, respectively. Its stock isn’t exactly a bargain at 31 times next year’s GAAP earnings, but it looks a bit more reasonably valued at 26 times its forward non-GAAP earnings. It also pays a term dividend yield of nearly 1%.

C3 grows much faster. From fiscal 2020 to 2024, its revenue grew at a CAGR of 19%. Analysts expect its revenue to grow at a CAGR of 20% from 2024 to 2027.

That top-line growth looks stable, but C3 expects to remain unprofitable for at least the next few years as it ramps up spending on new generative AI tools. That means it won’t be prioritizing buybacks or paying dividends anytime soon. It also depends too much on Baker Hughes and has gradually cannibalized its higher-value subscriptions with its lower usage-based fees to win new customers. Its stock also doesn’t look like a screaming bargain at six-times sales next year.

The obvious winner: Oracle

Oracle isn’t a high-growth tech stock, but its broad diversification, stable earnings, and reasonable valuation make it a much healthier investment than C3.

C3 isn’t doomed yet, but it needs to renew its partnership with Baker Hughes, fix those customer focus issues and cut its losses significantly before it can impress the bulls again. C3 might have the catchier ticker symbol, but Oracle is definitely a more balanced play in the growing AI market.