Enterprise artificial intelligence (AI) software provider C3.ai (AI 6.56%) is off to a shaky start in 2025. Shares of the company have fallen 10% this year, though there has been no company-specific news of note that could have triggered this pullback.
However, this seems like an opportunity for investors to add a promising AI stock to their portfolios. Let's examine the reasons behind the potential long-term and 2025 gains from a C3.ai investment.
NYSE: AI
Key Data Points
C3.ai stock could be worth much more in 12 months
C3.ai may not have got off to an auspicious start in 2025, but it has a consensus 12-month price target of $40 from 15 analysts covering the stock. That points toward a 29% jump from current levels. The good part is that it won't be surprising to see C3.ai indeed delivering such gains in the coming year.
After all, C3.ai's growth has picked up nice momentum in recent quarters. The company's revenue in the first six months of fiscal 2025 (which ended on Oct. 31, 2024) increased almost 25% year over year to $181.5 million. That's a big jump over the 14% year-over-year revenue growth that C3.ai delivered in the first six months of the preceding fiscal year.
This solid acceleration in C3.ai's growth can be attributed to the growing demand for the company's multiple generative AI-focused offerings. It gives customers access to applications that serve multiple industries, provides them with a software platform they can use to develop custom AI applications, and helps organizations deploy generative AI assistants to improve their operational efficiency.
C3.ai offers its AI software through major cloud service providers such as Alphabet's Google Cloud, Microsoft Azure, and Amazon Web Services. More importantly, C3.ai has been able to deepen its ties with these big names, with the company announcing a strategic alliance with Microsoft in November 2024 that could help expand the reach of its generative AI offerings.
Moreover, C3.ai management remarked on the company's December 2024 earnings conference call that existing customers are expanding their relationships. Additionally, C3.ai's enterprise AI software offerings are gaining traction among government agencies in the U.S. This should ideally unlock a new growth opportunity for the company given that the adoption of this technology for government applications could increase at a compound annual growth rate of 20% through 2033, generating up to $78 billion in revenue annually at the end of the forecast period.
Meanwhile, the global generative AI software market is expected to generate $52 billion in annual revenue by 2028, as compared to $5.1 billion in 2023. C3.ai is currently at the beginning of a terrific growth curve as it expects to generate $388 million in revenue in the current fiscal year, which would be a 25% increase over the previous fiscal year.
Even better, analysts expect C3.ai to maintain its double-digit revenue growth rate over the next couple of fiscal years as well.
AI Revenue Estimates for Current Fiscal Year data by YCharts.
The stock's valuation and potential growth suggest that it could be a solid investment
C3.ai's pullback this month is the reason why the stock is now trading at 11 times sales, which is relatively cheaper than the 14 times sales it was trading at just a month ago.
AI PS Ratio data by YCharts.
The stock's current sales multiple is very close to its five-year average sales multiple of 10. C3.ai can justify this sales multiple, which is slightly higher than the U.S. technology sector's sales multiple of 8, with strong growth in the coming years. Assuming C3.ai is able to maintain a price-to-sales ratio of 10 after three years and generates $553 million in revenue in fiscal 2027, as we saw in the first chart, its market cap could hit $5.5 billion.
That would be a 37% increase from current levels in the next three years. However, analysts have raised their growth expectations for the company in recent months, a trend that could continue in the future thanks to the fast-growing nature of the market that the company is operating in. As a result, stronger gains are possible, since the market could reward C3.ai with a higher sales multiple if it delivers better-than-expected revenue growth.
So, savvy investors looking to add an AI stock to their portfolios would do well to keep C3.ai in their sights. The company's accelerating growth and a relatively cheaper valuation than a well-known peer make it an attractive investment at current prices.
