The stock market is having a difficult end to 2021, led partly by renewed COVID-19 concerns and the Federal Reserve hinting that it could raise interest rates sooner than expected. High-growth technology stocks are bearing the brunt of this rout, with some staggering declines even after accounting for strong gains earlier in the year.

The tech-heavy ARK Innovation ETF, run by popular investor Cathie Wood, has fallen by more than 40% from its all-time high, and it's currently down 25% for 2021. By comparison, the S&P 500 index is still up 22% on the year, highlighting how badly some technology stocks are underperforming the broader market right now. But the tech sell-off presents some hot opportunities for investors to buy stocks at a discount. Artificial intelligence (AI) trailblazer C3.ai (NYSE:AI) just reported strong second-quarter earnings, and here's why it's a buy right now.

A digital face appearing amongst computer code and a digital background.

Image Source: Getty Images.

Creating a brand new market

There's no other company quite like C3.ai. It offers enterprise artificial intelligence solutions to sectors like oil and gas, which otherwise wouldn't have access to such technology. Its addressable market continues to expand rapidly, now serving 14 different industries, which is double the number it operated in at this time last year. 

C3.ai offers a suite of ready-made AI applications that can also be customized to suit the needs of specific companies. Within three to six months of an initial consultation, C3.ai can have the project delivered, which makes accessing the benefits of AI incredibly efficient for its customers. 

The company has an extensive partnership with oil and gas giant Baker Hughes, and together they've collaborated to build an entire line of applications tailored to that industry. These AI technologies are being used to predict potential equipment failures and cut carbon emissions by improving efficiency. They've also attracted large, long-term customers like Royal Dutch Shell

Oil and gas companies now comprise 35% of C3.ai's total revenue base, and it's a mutually beneficial arrangement, as these organizations would struggle to build such technology in-house. Yet it's just a sample of C3.ai's expansive footprint, which covers life sciences, financial services, and utilities, to name a few. 

Soaring customer growth

C3.ai's stock rocketed to all-time highs near $160 shortly after its public listing in December 2020. However, it was unable to keep up with investors' lofty revenue growth expectations, and it's now languishing at just $30 per share. Suffice it to say the stock market can be a demanding arena, but right now C3.ai is looking like a bargain.

Metric

Fiscal 2019

Fiscal 2022 (Estimate)

CAGR

Revenue

$92 million

$248 million

39%

Total Customers

21

104 (current)

89%

Data Source: C3.ai, Yahoo! Finance. CAGR = Compound Annual Growth Rate

The artificial intelligence industry is slated to grow by 33% per year between now and 2028, eventually reaching $360 billion in annual size at that point. But C3.ai is growing its revenue well above that rate, suggesting it's capturing additional market share along the way. Not to mention its $248 million in expected fiscal 2022 revenue is merely a fraction of its overall market opportunity. 

Given it takes up to six months for the company to deliver an AI application to a customer, revenue can sometimes lag behind customer growth, which acts as a leading indicator. Since C3.ai is growing its customer base more than twice as fast as revenue, there could be some upside financial surprises over the next few quarters. 

Why you should buy the stock

C3.ai has received recognition from the world's largest tech heavyweights. It has partnered with Microsoft's cloud computing arm, Azure, and Alphabet's Google Cloud. Together, they're developing AI applications to bring entrenched industries, like healthcare and manufacturing, into the future. But the company is also highly regarded in some financial circles, with Wall Street firm Needham maintaining a buy rating on C3.ai's stock, with a $103 price target. That's a whopping 243% higher than where it trades today. 

C3.ai has truly pioneered a business model to deliver artificial intelligence technologies that is yet to be replicated by another company. Also, it has managed to maintain a broad footprint with some of the world's largest organizations enlisting it for their AI needs. Its stock might be in the dumps right now, but C3.ai's operational performance suggests it deserves to be much higher, and for the long-term investor, that's a big opportunity. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.