Artificial intelligence (AI) is top of mind for investors this year, and for good reason. The technology has proven its ability to transform customer experiences and boost productivity, and it's already driving a substantial amount of revenue for some companies. 

Take Nvidia, for example. It has a dominant position in the market for AI data center chips, and its stock has surged 212% year to date. But there might be even greater opportunities ahead for investors. 

AI could add $200 trillion to the global economy

Cathie Wood is the head of Ark Investment Management, and she's one of the most bullish voices on Wall Street when it comes to the potential of AI. Together with Ark, she has issued a series of mind-boggling financial projections for the technology. 

Wood says AI software companies could generate $8 in revenue for every $1 in data center hardware Nvidia sells. Why? Because software has the ability to drastically boost the productivity of knowledge workers like scientists, lawyers, and engineers. Chatbots like ChatGPT can rapidly generate content and even produce computer code, accelerating the completion of tasks like programming by as much as 10 times.

Ark predicts the cost of training large language models -- which power those AI chatbots -- will decline by 70% per year between now and 2030, which means they could eventually be deployed in every corner of the business world. At 100% adoption, this could add a whopping $200 trillion in output to the global economy by the end of this decade. 

Investors now have an opportunity to buy stocks that could benefit from this AI revolution. Software company C3.ai (AI 1.45%) is working to deliver the precise productivity gains for its business customers that Ark is referencing, and here's why it could be one of the best bets for your money.

Enterprise AI could be a "megamarket event"

C3.ai is a pioneer of the enterprise artificial intelligence industry, which didn't even exist when the company was founded in 2009. Today, C3.ai delivers more than 40 AI-powered applications to some of the largest businesses in the world, and its CEO, Thomas Seibel, is calling the opportunity a "megamarket event" akin to the dawn of the internet and the smartphone. 

Oil and gas giant Shell has deployed C3.ai's asset management applications across its entire business. They collect data from over 20,000 items of equipment, which enables Shell to predict potential failures, increasing the safety of the company's employees and the environment. 

Similarly, Bank of America uses C3.ai to learn from customer behavior, particularly as it relates to changes in interest rates. The U.S. Federal Reserve has embarked on the most aggressive campaign to hike interest rates in its history over the past year, so quickly identifying borrowers who might be under extreme pressure can help to prevent losses for the bank. 

C3.ai's applications are so effective that the world's largest cloud computing platforms are now offering them to their own customers. A study conducted in 2020 determined that software engineers using Amazon Web Services (AWS) and C3.ai together could accelerate development processes by 26 times, as opposed to just using AWS on its own. 

That's because C3.ai can reduce the amount of written code required by a whopping 99%, which is exactly the type of productivity boost Ark Invest talks about. 

C3.ai is currently shifting its revenue model

Despite surging demand for AI products and services this year, C3.ai only mustered an 11% year-over-year increase in revenue during the recent fiscal 2024 first quarter (ended July 31). That has been a consistent theme for the company over the past year.

It's still closing new deals, including 32 in the first quarter, many of which were completed in partnership with leading cloud providers like AWS and Microsoft Azure. So, since there is clear demand for C3.ai's applications, where is the money? The company has spent the last four quarters transitioning its business away from a subscription-based revenue model because it takes too long to negotiate deals and onboard customers.

Going forward, C3.ai wants to charge customers on a consumption basis instead, which means they can come and go as they please while only paying for what they use. However, this shift has triggered a temporary slowdown in its revenue growth while customers switch to the new model and scale up their usage.

As the chart below shows, C3.ai has just entered phase two of the transition, which means revenue growth should start to ramp up over the next three quarters before really accelerating in fiscal 2025. 

A graphic explaining C3.ai's transition to a consumption revenue model, from its current subscription revenue model.

Data source: C3.ai.

C3.ai stock could soar over the long term, but there are clear risks

C3.ai stock has already rocketed 151% higher in 2023. Despite the gain, it's still trading 84% below its all-time high, which was set back in late 2020 when investors were paying elevated valuations for exciting tech stocks. C3.ai's growth struggles and its lack of profitability have contributed to its decline ever since. 

In fiscal Q1, the company generated a generally accepted accounting principles (GAAP) net loss of $64 million on revenue of $72 million. However, on a non-GAAP (adjusted) basis -- which excludes one-off and non-cash expenses -- it only lost $11 million. That's because it issued $50 million of stock-based compensation to employees, which dilutes investors but doesn't dent the company's cash balance.

Speaking of which, C3.ai ended the quarter with $750 million in cash, equivalents, and short-term investments on its balance sheet. If its losses remain at Q1 levels, those funds should be sufficient for the foreseeable future. However, the company did just warn investors it intends to invest heavily in its generative AI product portfolio, which could lengthen the amount of time it will take to achieve profitability. 

As a result, don't discount the possibility of a capital raise in the future, which might place pressure on C3.ai's stock price. On the plus side, that additional investment in generative AI could be key to attracting new customers and generating growth in the long term.

In any case, if Ark Invest's projections for AI and its impact on the economy are correct, then C3.ai has an enormous addressable market. The firm thinks AI software companies could share in $14 trillion in revenue by 2030, and C3.ai is well positioned to capture a slice of that opportunity. Given the steep decline in its stock price since 2020, some investors might find the risk-reward proposition too attractive to ignore right now.