Shares of Palantir Technologies took off this year and delivered impressive gains of 38% as of this writing, and artificial intelligence (AI) has played a central role in the stock's surge.
The company, which provides software solutions to both government and commercial customers, delivered better-than-expected fourth-quarter 2023 results last month, which led to a big jump in its stock price. Palantir, however, is not the only company that's benefiting from the growing demand for AI software, as C3.ai (AI 3.50%) showed with its latest quarterly results that it is set to capitalize on this market as well.
Let's take a closer look at C3.ai's latest results and see why it could turn out to be a solid choice for investors looking for an alternative to the richly valued Palantir.
NYSE: AI
Key Data Points
C3.ai is stepping on the gas
C3.ai stock jumped 24% following the release of its fiscal 2024 third-quarter results (for the three months ended Jan. 31, 2028) on Feb. 28. The pure-play AI enterprise software provider witnessed an 18% year-over-year increase in revenue to $78.4 million, exceeding consensus estimates of $76.1 million. C3.ai's net loss of $0.13 per share was also much lower than Wall Street's expectation of a $0.28 per-share loss.
The guidance was the topping on the cake. C3.ai is anticipating fiscal Q4 revenue to land between $82 million and $86 million. That's slightly higher than the $83.9 million consensus estimate at the midpoint. Also, C3.ai's updated full-year revenue guidance of $308 million exceeds Wall Street's expectations of $306.1 million.
The updated guidance suggests that C3.ai is on track to finish fiscal 2024 with a 15.5% increase in revenue. Even better, analysts are predicting that its pace of growth could pick up over the next couple of fiscal years.
AI Revenue Estimates for Current Fiscal Year data by YCharts.
That won't be surprising as C3.ai's switch to a consumption-based business model from a subscription-based model -- which earlier caused a slowdown in its growth -- seems to be working as management intended. C3.ai did away with the subscription model to reduce entry barriers for new customers. A consumption-based model meant that anyone who wants to use C3.ai's AI software services can simply deploy its solutions without having to enter into contract negotiations.
The good news is that C3.ai is indeed witnessing stronger deal momentum thanks to the switch. The company struck more than 36 deals worth $1 million or more in the previous quarter, up from 20 in the year-ago period. The number of deals in the $1 million to $5 million range also increased to 10 from six last year. C3.ai also reported four deals in the $5 million to $10 million range, up from zero in the year-ago period.
All this indicates that C3.ai is indeed moving in the right direction and could turn out to be a solid AI software play in the long run. It seems on track to make the most of the AI software market that's expected to clock annual growth of 23% through 2032 and generate over $1 trillion in annual revenue, which is why investors would do well to buy it before it becomes expensive.
The stock is significantly cheaper than Palantir
Palantir's red-hot rally means that it is now trading at an expensive 26 times sales. With analysts forecasting a 22% increase in the company's revenue in 2024 to $2.7 billion, some might argue that the stock is expensive when compared to the potential growth that it is predicted to deliver. Of course, Palantir's leading position in the fast-growing market for AI software platforms means that it could justify its rich valuation in the long run.
Shares of C3.ai are trading at 14 times sales, which makes it significantly cheaper than Palantir. It is also worth noting that analysts are anticipating C3.ai's earnings to increase at an annual pace of 51% for the next five years, which is quite solid. Of course, Palantir's earnings are expected to increase at a faster pace of 85%, but investors will have to pay a much more expensive valuation for the latter.
Given that C3.ai's growth is expected to gain steam in the next few years, buying this AI stock right now looks like a smart thing to do as it seems set to go on a bull run, and savvy investors have a chance to buy it before it gets more expensive.
