Forget C3.ai: Consider These 2 AI Stocks for Your Portfolio

In the rapidly evolving world of artificial intelligence (AI), investors are constantly on the lookout for promising stocks. One name that has gained significant attention is C3.ai (AI), an enterprise AI software provider. However, with its stock trading below its IPO price and facing several challenges, investors might want to consider alternative AI stocks. Here, we explore two compelling options: Micron (MU) and IBM (IBM).

Micron, a leading provider of DRAM and NAND memory chips, has seen remarkable growth in recent years. The company's products are essential for supporting AI applications, as high-density memory chips allow data centers to store more short-term data and high-capacity NAND chips store more long-term data in solid-state drives (SSDs). Micron's revenue surged by 62% in fiscal 2024, driven by stabilizing PC and smartphone markets, as well as data center operators purchasing more high-capacity SSDs and high-bandwidth memory (HBM) chips for AI applications. In fiscal 2025, analysts expect Micron's revenue and adjusted EPS to grow by 52% and 587%, respectively.

IBM, often viewed as a slow-growth tech giant, has experienced steady revenue and EPS growth since 2020. The company's focus on expanding the presence of Red Hat, its open-source software subsidiary, in the hybrid cloud and AI markets has driven this growth. IBM's strategy involves developing open-source AI tools for processing the data that flows between public cloud platforms and on-site private clouds. This approach caters to large companies that prefer hybrid cloud deployments, leveraging IBM's legacy in enterprise hardware, software, and IT services. From 2023 to 2026, analysts expect IBM's revenue and EPS to grow at compound annual rates of 4% and 5%, respectively. Its stock is reasonably valued at 21 times forward earnings.

C3.ai, on the other hand, faces several challenges that may concern investors. The company generates over 30% of its revenue through a joint venture with Baker Hughes, which is set to expire by the end of fiscal 2025 without renewal. Additionally, C3.ai expects to remain unprofitable as it develops more generative AI tools, and it has gone through three CFOs since its IPO, repeatedly changing its formula for counting customers and cannibalizing its own subscription services with consumption-based plans.

In comparison, Micron and IBM offer more attractive growth prospects and valuations. Micron's potential for high growth in the AI-driven market and IBM's steady growth trajectory make them more suitable for long-term investment. Moreover, diversifying your AI-related investments by including Micron and IBM in your portfolio can help mitigate risks while maintaining exposure to C3.ai.

While the AI market holds tremendous potential, investors must remain vigilant and adaptable to navigate its complexities. By considering alternative AI stocks like Micron and IBM, investors can better position themselves to capitalize on the ongoing growth of the AI sector.