There are mammoth opportunities in artificial intelligence (AI) for growth investors to consider. AI has the potential to revolutionize companies in multiple industries by making operations more efficient and taking over and/or eliminating mundane and routine tasks along the way. The big challenge, of course, is picking the right AI stock. There are many companies out there that are involved in AI, but that doesn’t necessarily mean they will be winners in the space.
This article focuses on two popular AI stocks with retail investors: C3.ai (NYSE: AI) and BigBear.ai (NYSE: BBAI). Both of these stocks come with risks and opportunities. If you are interested in an AI stock, which one is the better option to consider adding to your portfolio today?
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What’s the better growth business?
Both C3.ai and BigBear.ai provide AI-powered solutions for their customers. The problem is that many other companies do this too. The challenge is in determining which companies are good, growing businesses. Their financial metrics can help answer the question.
Data by YCharts.
Over the past three years, C3.ai has generated more consistently strong growth. What’s encouraging is that it has been accelerating growth, which suggests it is benefiting from AI’s overall growth. BigBear.ai, however, saw more volatility in its growth. And while management touts a strong backlog, that doesn’t guarantee all of that will flow through to the company’s top line anytime soon — a big chunk of the backlog includes unexercised options.
Which company’s cash flow position is stronger?
A key metric growth investors should consider is operating cash flow. For companies such as C3.ai and BigBear.ai, which aren’t profitable, it’s important to see how much cash they are burning through. A high cash burn rate combined with a low cash balance can result in frequent stock offerings, leading to share dilution for existing shareholders.
Data by YCharts.
C3.ai has come a long way in improving its rate of cash burn, but it is still a bit worse than BigBear’s.
However, it’s also important to consider this in the context of their respective cash positions as well, to see how long they can sustain this level of cash burn before having to raise money.
As of the end of March, BigBear’s cash and cash equivalents totaled $107.6 million, which would mean that at its current burn rate of more than $30 million over four quarters, that should keep it well funded for multiple years.
C3.ai’s cash and cash equivalents as of the end of April totaled $164.4 million. And if you count its marketable securities of $578.3 million, that gives it $742.7 million in near-term liquidity. Although its cash burn is slightly higher than BigBear’s, its stronger cash balance means that it can sustain its current burn rate even longer. That doesn’t, of course, mean the burn rate won’t intensify or that C3.ai won’t do an offering anytime soon, but the numbers do show that it is in a stronger financial position than BigBear.ai.
There’s little doubt that C3.ai is the better buy today
If you’re choosing between these two stocks, these metrics suggest C3.ai is the safer and more promising one to invest in right now. Its growth rate is stronger, and its cash position is also better. While I wouldn’t go as far as to say that it’s a safe stock to buy (it is, after all, still unprofitable and burning through cash), if you are picking between these two stocks, C3.ai looks to be the better option right now.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
