Prediction: 2 AI Stocks That Will Be Worth More Than C3.ai 2 Years From Now

In This Article:

Key Points

  • C3.ai is still struggling to prove its business model is sustainable.

  • Applied Digital’s data center business could grow rapidly as the AI market expands.

  • DigitalOcean's flexible pricing plans are attracting customers to its cloud platform.

  • 10 stocks we like better than C3.ai ›

C3.ai (NYSE: AI) went public four and a half years ago to some enthusiasm, but it now trades nearly 40% below its IPO price. The enterprise AI software maker initially impressed investors with its catchy ticker symbol, the flexibility of its modules (which can be integrated into an organization's existing software), and its rapid growth rates. Unfortunately, its growth cooled off, its losses racked up, and its customer concentration issues became more apparent.

On the bright side, C3.ai's top-line growth accelerated again in its fiscal 2024 and fiscal 2025 (which ended in April), and it extended its crucial deal with its largest client, Baker Hughes -- which accounts for more than 30% of its revenue -- for another three years. It also won more federal contracts, secured new cloud partnerships, rolled out fresh generative AI tools, and expanded beyond its core subscription model by introducing consumption-based pricing options.

The letters "AI" projected on a circuit board.
Image source: Getty Images.

From fiscal 2025 to fiscal 2027, analysts' consensus expectation is for C3.ai's revenue to grow at a compound annual rate of 19%. But trading at 7.5 times this year's sales, C3.ai doesn't look cheap. It also doesn't expect to turn profitable anytime soon as it ramps up its spending on new AI services.

Assuming C3.ai matches analysts' estimates, and then grows its revenue by another 19% in fiscal 2028, but trades at a more modest 5 times forward sales, its market cap would actually decline by about 6% from $3.5 billion now to $3.3 billion over the next two years.

So instead of wondering if C3.ai will ever revisit its IPO price, it might be smarter to invest in two less valuable AI-driven stocks that could surpass C3.ai's market cap by 2027: Applied Digital (NASDAQ: APLD) and DigitalOcean (NYSE: DOCN).

Applied Digital

Applied Digital builds big data centers and rents them out to cloud and AI companies like Microsoft and Amazon. It has been a major beneficiary of the AI boom and has been transitioning into a real estate investment trust (REIT) -- a type of business that has particularly favorable tax advantages, but must pay out at least 90% of its taxable income each year as dividends.

Applied Digital currently operates five data centers, all of which are located in North Dakota, and it plans to open additional centers in South Dakota and Iowa in the near future. In 2023, it launched a first-party cloud infrastructure platform powered by its own servers in its own data centers. That business grew rapidly, but it was a capital-intensive strategy that awkwardly put it in competition with some of its biggest clients. That's why it recently announced that it was going to sell that business and streamline its operations amid its ongoing transition into a REIT.