The head of C3.ai says it is a “mathematical certainty” that the company will be profitable. But a closer look at the numbers says otherwise.

C3. have (NYSE: AI) has accelerated its growth in recent quarters, which has been a positive sign, and says it is seizing new opportunities in artificial intelligence (AI). But one area that is still a cause for concern for investors is the bottom line. The software provider continues to post hefty losses, which could keep risk-averse investors at bay.

Still, investors shouldn’t be worried, according to CEO Thomas Siebel, who believes profitability will come in the future as the company expands its operations. In a recent interview with CNBC, he even said it was a “mathematical certainty” that the company would get there.

However, after looking at the company’s recent results, here’s why I’m not convinced it’s a certainty at all.

Revenues increased, but losses did not decrease much

As a company gets bigger, investors expect its bottom line to eventually improve. In C3.ai’s case, however, the improvement wasn’t all that impressive. During the company’s most recent quarter, which ended July 31, sales totaled $87.2 million and were up 21% year over year. But despite strong revenue growth, the company’s net loss narrowed a modest 2 percent from $64.4 million a year ago to $62.8 million in the latest quarter.

There are indeed positives. C3.ai continues to generate a high gross profit margin of 60%, and operating expenses increased by only 9% in the last quarter. But the scale is not significant enough to suggest that there is any certainty of profitability in the near future. The company has made strides in cutting losses, but that doesn’t necessarily mean positive earnings numbers are on the horizon.

Why business expansion will not guarantee profitability

By increasing its activity, C3.ai can continue to bring incremental improvements to the bottom line. But there is also the risk that they will need to spend more money than they expect to grow their operations.

AI spending could slow if there is a recession or if companies struggle to see the benefits of such projects. Research company Gartner projects that companies will abandon at least 30% of generative AI projects by the end of next year.

This means C3.ai’s growth could slow as there would be less interest in its AI applications. And they may need to spend more money to attract customers. Both factors would make his outcome worse, not better. At the very least, there is no certainty that the business will be profitable in the near future.

The story continues

C3.ai remains a risky investment

A CEO can often be a company’s best salesman, promoting its prospects. However, investors should take such optimism and enthusiasm with a grain of salt.

C3.ai is growing, but there is by no means a guaranteed path to profitability at this time. Management continues to provide guidance for the current fiscal year (ending April 2025) indicating an operating loss of at least $95 million. And this is an adjusted loss; the actual net loss will likely be higher.

The stock has struggled of late, falling 20% ​​in the past three months alone, as investors appear concerned about the outlook for profitability. Sales growth alone may not be enough to convince the market that the stock is the real deal, and investors may be better off buying other AI stocks.

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David Jagielski has no position in any of the listed stocks. The Motley Fool recommends C3.ai and Gartner. The Motley Fool has a disclosure policy.

The head of C3.ai says it is a “mathematical certainty” that the company will be profitable. But a closer look at the numbers says otherwise. was originally published by The Motley Fool