C3.ai (AI 3.25%) was at the vanguard of artificial intelligence (AI) when it was founded in 2009, so it saw this technological revolution coming from a mile away. It now offers over 130 ready-made and customizable applications to help businesses accelerate their adoption of AI, which is very useful for those without the resources or expertise to develop the technology from scratch.
C3.ai stock is trading significantly below its all-time high from 2020, but its valuation is starting to look attractive, especially in light of the company's rapid revenue growth and its enormous addressable market, which could top $1.3 trillion by 2032.
The company is scheduled to report financial results for its fiscal 2025's fourth quarter (which ended on April 30) on May 28, when it will provide an update on its business and a forecast for the new fiscal year. Should investors buy C3.ai stock ahead of the report?
Image source: Getty Images.
A unique AI software company
C3.ai's applications are used by businesses in 19 different industries, including the oil and gas sector, transportation, telecommunications, healthcare, manufacturing, and more. The company offers a series of ready-made applications tailored specifically to those industries, but it can also deliver a custom solution within six months on an initial customer briefing.
Oil and gas giant Shell has over 100 AI applications at various stages of production. They help the company conduct preventive maintenance, predict equipment failures, and even reduce carbon emissions.
At one liquefied natural gas plant, Shell deployed C3.ai's Real Time Production Optimization application to improve efficiency, which reduced carbon emissions by 355 tons per day. On an annualized basis, that is the equivalent of taking 28,000 cars off the road.
Customers can access C3.ai's applications through leading cloud platforms like Amazon Web Services (AWS), Microsoft Azure, and Alphabet's Google Cloud. Businesses can leverage the computing capacity available through those cloud providers to scale up their C3.ai applications, meaning they don't have to maintain any of their own data center infrastructure. This is a very attractive proposition, especially for smaller businesses with limited financial and technical resources.
Revenue growth is gathering momentum
C3.ai generated $98.7 million in total revenue during the fiscal 2025 third quarter (ended Jan. 31), which was a 26% increase from the year-ago period. It was the second-fastest growth rate in almost three years, next to the company's 29% increase in the fiscal 2025 second quarter three months earlier.
This strong momentum is attributable to a change in its business model. In the first quarter of fiscal 2023 (ended July 31, 2022), the company decided to abandon its subscription revenue model in favor of consumption-based pricing, meaning customers would only pay for what they use.
This shift eliminated lengthy negotiating periods and allowed C3.ai to get new customers on board far more quickly. It led to a temporary (but expected) decline in the company's revenue growth while customers scaled up their consumption, but investors are now seeing the payoff.
Management forecast $113.6 million in revenue for the fiscal 2025 fourth quarter (at the high end of the guidance range), which would represent 31% year-over-year growth. C3.ai stock would likely move higher if the company delivers on that number or beats it when the quarterly report is released on May 28.
Should investors buy C3.ai stock before May 28?
As I mentioned earlier, enterprise AI could be a $1.3 trillion opportunity for C3.ai and its competitors by 2032 (based on a report by Bloomberg that was cited by CEO Thomas Siebel). Therefore, investors should keep their eyes on the long-term prize rather than placing too much focus on any single quarter.
If you believe in the potential of AI, C3.ai stock might be a great buy right now because of its valuation. It is down 85% from its all-time high, which was set during the tech frenzy in 2020, when its price-to-sales ratio (P/S) soared above 75. Simply put, that level was completely unsustainable.
But its P/S is now just 8.3, which is a 14% discount to its three-year average of 9.6, despite the fact the company is currently growing its quarterly revenue at the fastest rates since it shifted to consumption pricing:
AI PS Ratio data by YCharts.
The bottom line presents one key risk to consider. The company lost $209 million on the basis of generally accepted accounting principles (GAAP) through the first three quarters of fiscal 2025, as it continued to invest heavily in growth. On the plus side, that net loss was only $30.4 million on a non-GAAP basis, which excludes non-cash expenses like the $174 million in stock-based compensation it issued to its employees during the period.
According to management's guidance, the company might have lost another $40 million on a non-GAAP (adjusted) basis during the fourth quarter, so investors won't want to see a number larger than that in the May 28 report.
The company has around $724 million in cash, equivalents, and marketable securities on hand, so it can continue to lose money at the current pace for a few more years, but it will have to prioritize profitability eventually if it wants to avoid diluting existing shareholders by raising more money.
But based on C3.ai's current valuation and the sizable AI opportunity ahead, now might be a good time to take a long-term position in the stock irrespective of the upcoming May 28 report.
