The popularity of artificial intelligence (AI) has turned out to be a big boon for C3.ai (AI -5.04%) investors in 2023; shares of the enterprise AI software provider have soared 266% so far this year. Those gains are outstanding considering that the company has been plagued with slow growth over the past fiscal year on account of a change in its business model.

However, C3.ai's flat revenue growth and eye-popping stock price surge have left it trading at an expensive valuation. C3.ai's sales multiple of 17 doesn't seem justifiable considering that its revenue increased just 5.6% in fiscal 2023 (ended April 30) to $267 million. That was a big drop from the 38% revenue growth the company had delivered in fiscal 2022. 

AI Revenue (TTM) Chart

AI Revenue (TTM) data by YCharts

But savvy investors have continued to pile into C3.ai stock, driven mainly by the AI hype. Will that hype translate into tangible growth for C3.ai and help the stock justify its rich valuation? Let's find out.

C3.ai expects growth to accelerate this year

C3.ai's guidance for fiscal 2024 suggests that the shift in its business model from a subscription-based one to a consumption-based one is probably going to work. The company made this change to lower the entry barrier for new customers, believing a pay-as-you-go model would reduce the need to negotiate contracts and help it quickly strike deals.

The downside to this change was that C3.ai lost revenue visibility, which long-term subscription contracts brought to the company. As a result, the company's revenue growth slowed down remarkably last year. But the good part is that the change to a consumption-based model is working for C3.ai by helping the company shorten its sales cycle and increase the number of qualified sales opportunities.

C3.ai management revealed during its investor day presentation last month that the number of qualified sales opportunities in its pipeline has doubled this fiscal year to 614 from 297 in fiscal 2023. It is also worth noting that C3.ai ended the fourth quarter of fiscal 2023 with a sales cycle of 3.7 months, which was shorter than the five-month sales cycle in the same quarter a year ago.

C3.ai was following a subscription-based model at the end of fiscal 2022, so the change of business model seems to be having the desired effect on the company's sales performance. This explains why C3.ai is expecting revenue to land at $307.5 million -- the midpoint of its guidance range in fiscal 2024 and a 15% increase over the prior year. The high end of C3.ai's revenue guidance is at $320 million, which would be a 20% increase over fiscal 2023.

It wouldn't be surprising to see C3.ai hit the higher end of its revenue guidance, or even exceed that mark, given the massive jump in the company's qualified sales opportunities this year. And there is evidence as to why that may be the case. For example, C3.ai has seen a three-fold jump in the number of pilot agreements in the first quarter of fiscal 2024 compared to the final quarter of 2023. Also, the company signed 16 deals in less than two months of the first quarter of fiscal 2024, which was a nice jump over the 10 deals it had signed during the entire quarter in the year-ago period.

These metrics indicate that C3.ai is moving in the right direction and is setting itself up to capitalize on the huge opportunity in the enterprise AI market. According to third-party estimates, the enterprise AI market could clock annual growth of almost 35% through 2030 and generate annual revenue of $155 billion at the end of the forecast period. So C3.ai is scratching the surface of a terrific opportunity, which could help it sustain impressive growth for a long time to come.

Should you be buying the stock now?

We have already seen that C3.ai is trading at a rich price-to-sales multiple right now, which is significantly higher than the S&P 500's multiple of 2.6. The potential acceleration in the company's growth this year and the huge opportunity that lies ahead of it could help C3.ai justify its lofty valuation. And analysts are expecting a significant acceleration in C3.ai's growth from the next fiscal year.

AI Revenue Estimates for Current Fiscal Year Chart

AI Revenue Estimates for Current Fiscal Year data by YCharts

The overall market opportunity and C3.ai's improving sales performance place it in a solid position to deliver the impressive growth that analysts are expecting from it. That's why growth investors looking to benefit from the proliferation of AI software might want to consider buying C3.ai, as it has the potential to fly higher despite its current valuation.