The artificial intelligence (AI) hype train has given C3.ai (AI -2.54%) a massive boost on the stock market in 2023. Shares of this pure-play enterprise AI software provider have more than doubled this year already despite a red flag that derailed its terrific momentum last month, and it now looks like this high-flying company is all set to head higher.

C3.ai stock surged over 23% on May 15 after the company released preliminary results for the fourth quarter of fiscal 2023 (which ended on April 30, 2023). Shares of the company are now up a whopping 140% so far this year, but that also means that the stock has become expensive. So, does this mean it is too late for investors to buy this hot AI stock? Let's find out.

C3.ai's growth isn't good enough to justify its valuation

Although investors are cheering C3.ai's preliminary results as they are better than what the company was originally expecting, they shouldn't forget that the company is set to close the fiscal year with tepid growth.

The company's quarterly revenue is expected to be between $72.1 million and $72.4 million, slightly ahead of the $71 million figure it was forecasting earlier. Meanwhile, the full-year revenue of $266.5 million to $266.8 million will also be only slightly ahead of C3.ai's original forecast of $265 million.

The company posted $72 million in revenue in the same period last year, which means that its top line is going to remain flat year over year as compared to the 38% jump it enjoyed a year ago. Annual revenue growth is going to be around 5% as C3.ai delivered $253 million in revenue in fiscal 2022, which was a 38% jump over the prior year.

C3.ai's growth isn't up to the mark for a company that's trading at almost 10 times sales. The stock was trading at just 4.4 times sales at the end of 2022 before the generative AI hype train arrived. So, investors will now need to pay a rich multiple to buy C3.ai. However, there's one scenario under which it may not be too late to buy C3.ai.

But investors might consider buying C3.ai if this happens

C3.ai is witnessing a marked slowdown that can be attributed to a change in its business model. The company's switch to a consumption-based business model from a subscription-based one has created headwinds as customers can increase or decrease their usage of C3.ai's offerings based on their requirements.

They don't need to pay a fixed subscription fee, which would have given C3.ai better revenue visibility as it would have been able to lock them in for longer periods. But the upside to the pay-as-you-go business model that the company has adopted is that it doesn't have to negotiate subscription pricing and terms with customers, which should lower the entry barrier for new clients.

The good part is that the company has witnessed an acceleration in deal activity thanks to the change in the business model. C3.ai closed 43 deals last quarter, a nice improvement over the 27 deals it closed in the fiscal third quarter. More specifically, C3.ai management points out that "the number of qualified enterprise opportunities for closure within 12 months in our sales pipeline has increased by over 100% in the past year" because of the consumption-based business model.

C3.ai hasn't issued any guidance for the current quarter or the new fiscal year yet. It will provide those numbers when it releases its complete results on May 31. However, consensus estimates suggest that there could be an acceleration in C3.ai's growth from this quarter. Analysts are expecting a 9% increase in the company's fiscal 2024 first-quarter revenue, while its revenue for the full fiscal year is expected to jump 19% to $317 million. The company's revenue is expected to grow nicely in fiscal 2025 as well.

AI Revenue Estimates for Current Fiscal Year Chart.

AI Revenue Estimates for Current Fiscal Year data by YCharts.

The good part is that C3.ai's growth could accelerate, considering the fast-growing market in which it is operating. Market research firm IDC estimates that the AI software market could be worth a massive $792 billion by 2025. C3.ai's annual revenue shows that it is scratching the surface of a huge opportunity, so it won't be surprising to see its growth pick up pace.

What's more, analysts estimate 51% annual growth in the company's bottom line over the next five years. So, if C3.ai steps on the gas with sunny guidance numbers later this month and justifies its valuation, investors looking for an AI stock can consider buying it, given the huge end-market opportunity on offer.