This AI software company’s fortunes are likely to improve over the next three years.
The past three years have been terrible for C3.ai (AI 4.53%) investors as shares of the company lost nearly half their value during this period. But the good news is the stock has started showing signs of life once again.
A big reason why C3.ai stock had been punished during that time is because of a transition in its business model that began in fiscal 2023. As a provider of artificial intelligence (AI) software for enterprises, the company switched from a subscription-based pricing model to a consumption-based pricing model in the fiscal first quarter (ended July 2022).
The move was meant to lower the entry barrier for customers looking to deploy the company’s AI software solutions and help increase sales. However, it hurt its revenue for some quarters as a consumption model meant the company wasn’t receiving the monthly subscriptions from customers anymore, and it wasn’t locking them into long-term contracts. This is evident from the chart below.
Data by YCharts.
However, the above chart also tells us C3.ai has started growing once again. But can the company sustain this momentum over the next three years and deliver solid gains to investors? Let’s find out.
C3.ai’s business-model switch is set to accelerate its growth
When C3.ai made the switch to a consumption-based model a couple of years ago, management pointed out it would take seven quarters for the transition to be complete. The company was forecasting its customers would have transitioned to the consumption-based model by the eighth quarter, after which its revenue growth should start accelerating.
The good part is management’s forecast is indeed playing out. Revenue in fiscal 2024 Q4 (the eighth quarter since the transition started) increased 20% year over year to $86.6 million. That was a significant jump from the flat-revenue growth the company reported in the same quarter a year ago.
It is also worth noting C3.ai finished the latest fiscal year (ended April 30) with a 16% increase in revenue to $310.6 million. Again, that was a significant improvement over the 5% revenue growth it recorded in fiscal 2023. As far as fiscal 2025 is concerned, C3.ai expects its top line to jump 23% to $382.5 million (at the midpoint), further supporting the notion its business is on the rise.
CEO Tom Siebel’s comments on the May earnings call suggest the interest in C3.ai’s AI software solutions remains robust. Its existing customers have increased the usage of its offerings, and the number of inquiries from new customers is also quite massive. According to Siebel:
In Q4 alone, we received almost 50,000 inquiries from 3,000 businesses, each with revenue greater than $500 million, all expressing interest in our generative AI application, 50,000 … 10,500 in February — the 28 days of February alone. We currently expect this to expand to 90,000 inquiries in the first quarter of ’25.
It is worth noting that C3.ai closed 191 agreements with clients in the previous fiscal year, which was a 52% improvement over the previous year. Given the company is engaged in 123 pilot projects, there is a good chance it could keep landing more contracts going forward and continue to build a solid revenue pipeline.
That explains why analysts are forecasting stronger revenue growth in the next three years.
Data by YCharts.
This major improvement could send the stock soaring over the next three years
C3.ai finished fiscal 2024 with a non-GAAP net loss of $0.47 per share, which was higher than the $0.42 per-share loss it reported the previous year. That loss should grow even bigger in the current fiscal year. However, as evident from the following chart, analysts expect C3.ai’s loss to shrink in fiscal 2026, and it could report non-GAAP profits the following year.
Data by YCharts.
That won’t be surprising as C3.ai management expects its non-GAAP gross margin to remain at the higher end of the 70% range now that the business-model switch is complete. For comparison, C3.ai ended fiscal 2024 with a non-GAAP gross margin of 69%.
A combination of stronger revenue growth and an uptick in the company’s margins are likely to help C3.ai become profitable in the next three years. Moreover, the immense opportunity in the AI software market, which could be worth $52 billion in 2028, suggests C3.ai could be at the beginning of a terrific growth curve.
All this suggests C3.ai’s stock-price performance over the next three years could be much better than what it has delivered in the past three years. That’s why investors looking to add an AI stock to their portfolios should consider buying it as its latest-earnings report seems to have triggered a bull run.
