The artificial intelligence (AI) hype train sent C3.ai (AI 3.85%) stock flying in 2023, with shares of the pure-play enterprise AI software provider more than tripling so far this year.

However, C3.ai's terrific rally came to a grinding halt after the company released its fiscal 2023 results (for the year ended April 30, 2023) on May 31. A tepid outlook sent investors into panic mode and the stock is down more than 11% since the release. However, C3.ai stock is still up 215% so far in 2023. Does this mean it is too late for investors to buy the stock now even though it has dropped following its earnings report? Let's find out.

C3.ai stock remains expensive despite its latest pullback

C3.ai finished fiscal 2023 with revenue of $267 million, an improvement of just 6% over the prior year. The company also reported a non-GAAP (adjusted) net loss of $0.42 per share, down from the prior year's loss of $0.73 per share. The company's fiscal 2024 outlook suggests its growth is set to accelerate.

C3.ai expects $307.5 million in revenue in fiscal 2024 at the midpoint of its guidance range, a jump of 15% over the recently concluded fiscal 2023. Analysts, however, were looking for a slightly stronger jump of 19% to $317 million, and C3.ai's failure to hit that mark sent the stock packing. Meanwhile, the company expects the non-GAAP loss from operations to range between $50 million and $75 million in fiscal 2024, which points toward a slight improvement at the midpoint when compared to fiscal 2023's reading of $68 million.

For a stock that's trading at a rich 14.5 times sales, C3.ai needed to deliver better-than-expected guidance. Also, the company's projected fiscal 2024 growth doesn't seem to be solid enough to justify that high sales multiple. The stock remains richly valued compared to the growth that it is slated to deliver this year considering that the S&P 500 sports an average price-to-sales ratio of 2.4.

As such, investors who didn't buy C3.ai before its hot rally started may want to avoid the stock right now as the combination of a rich valuation and weaker guidance could send it lower. But at the same time, it would be a good idea to be on the lookout for an opportunity to buy C3.ai if it becomes affordable.

The big picture is still bright

A key reason why C3.ai hasn't been delivering eye-popping growth despite operating in a fast-growing niche such as AI is that the company has switched its business model to a consumption-based one from a subscription-based one. As a result, consumers pay on the go for C3.ai's solutions instead of signing long-term contracts.

The downside of a consumption-based model is that it reduces revenue visibility for the company as consumers could choose to dial down their use of C3.ai's products when needed. But the upside is that it allows the company to quickly close new deals and reduces the length of the sales cycle. This explains why C3.ai was able to close 43 agreements with customers last quarter, a number that includes the 19 pilots the company initiated last quarter.

The number of closed agreements was up 59% over the prior year, suggesting that C3.ai's business model switch is accelerating its deal momentum. The company pointed out on the latest earnings conference call that the "number of qualified enterprise opportunities targeted for closure within 12 months in our sales pipeline has increased by more than 100% in the past year."

That's not surprising as C3.ai has reduced the average sales cycle for new deals and expansion deals to 3.7 months last quarter from five months in the year-ago quarter thanks to the change of business model. C3.ai points out that it is in the second phase of its transition to a consumption-based model where it will witness a ramp-up in the number of deals signed. Once it moves into the third phase of transition after four quarters, it expects to witness an acceleration in consumption activity and faster growth.

So, C3.ai's growth should start accelerating from fiscal 2025 based on the timeline management has provided. Also, the company points out that the total addressable market for AI software could hit a whopping $791 billion in 2026. All this indicates that C3.ai is still in its early phases of growth and it may be a good idea to accumulate this AI stock on dips since it is likely to regain its mojo in the long run.