C3.ai (NYSE: AI) came out strong Tuesday morning, with the stock up more than 24% after the announcement of an expanded strategic alliance with Microsoft (NASDAQ:MSFT). The deal takes all the buzzwords investors love: technical integration, joint sales and marketing, and focuses on accelerating AI-driven business transformation. Microsoft will now THE go-to cloud provider for C3.ais offerings, while C3.ai gets a spot as A preferred AI partner on Azure. Sounds like a win-win situation, right? Not so fast.
Here’s the catch: this new deal isn’t really new. Microsoft and C3.ai have been partnering since 2018 to provide solutions to big names like Shell and Nucor. And while the press release promises enhanced capabilities and brilliant innovations, it doesn’t offer a single number to back up the hyped revenue forecast, no profit projection, nada. Meanwhile, C3.ai continues to bleed cash, with $280 million in losses last year and no profitability in sight. The power dynamics here also raise eyebrows. Microsoft, with a market capitalization of nearly $3.1 trillion, is clearly the dominant player. C3.ai? A niche contributor with a market cap of just $3.3 billion.
The market reaction looks more like excess exuberance than rational optimism. Of course, the partnership boosts C3.ai’s credibility in a competitive AI market, but let’s not forget that flashy alliances don’t always translate into monetary signs. For now, it seems like a long-term story with lots of ifs and maybes. Investors should think twice before jumping in based on hype alone.
This article first appeared on GuruFocus.