C3.ai stock looks like a great buy right now if software is the next frontier in the fast-evolving artificial intelligence industry.
Ark Investment Management manages a portfolio of exchange-traded funds (ETFs) focused on innovative technology stocks. Founder and Chief Investment Officer Cathie Wood believes software companies could be the next big opportunity in the artificial intelligence (AI) industry. She even predicts that they will eventually generate €8 in revenue for every €1 spent on chips from suppliers, for example Nvidia.
Since making that prediction last year, Wood has put money into leading AI software startups like OpenAI, Anthropic and xAI through the Ark Venture Fund. Additionally, Ark’s ETFs include several publicly traded AI software stocks, such as Metaplatforms, TeslaAnd Microsoft.
If Wood turns out to be right about AI software companies, here’s why C3.ai (AI -1.29%) could be one of the biggest winners.
Image source: Getty Images.
The world’s first AI company
C3.ai was founded in 2009 to help companies unlock the power of predictive analytics, which today is better known as AI. The first company of its kind, it now offers more than 40 turnkey and customizable AI applications to organizations across 19 different industries, including oil and gas, financial services, and manufacturing.
It takes a significant amount of time, money and expertise to build AI software from scratch. That’s why many companies are turning to third parties – and C3.ai can deliver completed applications to customers within six months of an initial meeting.
Georgia-Pacific produces pulp and paper for consumer products, building materials, packaging and more. The company’s machines each have more than 5,000 sensors that produce 1 billion data points every day. Georgia-Pacific uses C3.ai’s Reliability application to assist with predictive maintenance, and so far it has resulted in a 5% improvement in the overall effectiveness of the equipment. What’s more, C3.ai is so good at finding technical issues that Georgia-Pacific employees now spend 80% of their time troubleshooting rather than looking for them.
That story is not unique. Oil producer Shell has deployed over 100 custom C3.ai applications to monitor over 10,000 devices, reducing CO2 emissions and also the chance of catastrophic failures. In the same way, Dowone of the world’s largest chemical manufacturers, has reduced equipment downtime by 20% thanks to C3.ai’s predictive capabilities.
The demand for C3.ai’s software is increasing enormously. During the recent first quarter of fiscal 2025 (ended July 31), the company closed 51 agreements through its partner network, including Alphabet‘s Google Cloud, Amazon Web services and Microsoft Azure. That was no less than 151% more than the same period last year.
Record turnover with accelerating growth
C3.ai generated record revenue of $87.2 million in the first quarter, up 21% from the same period a year ago. That growth rate has now accelerated for six consecutive quarters, and 21% was the fastest pace in almost two years.
The strong result stems from a strategy change that C3.ai management implemented at the beginning of the 2023 financial year (which started on May 1, 2022). The company decided to move from a subscription-based revenue model to a consumption-based model, eliminating lengthy negotiation periods with potential customers, allowing them to sign up much faster.
The transition led to an expected slowdown in C3.ai’s business in the initial stages as it transitioned its existing customers to the new model, but it is now paying off with faster new customer acquisition and accelerating revenue growth.
C3.ai is still losing money on the bottom line. Net loss was $62.8 million in the first quarter, which was a slight improvement from $64.3 million in the same period a year ago. On a non-GAAP (adjusted and not conforming to generally accepted accounting principles) basis (which excludes one-time and non-cash expenses such as stock-based compensation), the company’s loss was only $6.8 million.
C3.ai’s revenue is growing much faster than operating expenses (21% versus 8.8% in the first quarter), and that trend is expected to continue, which could make the company profitable in the coming quarters.
C3.ai shares are cheap relative to their historical valuation
C3.ai went public in December 2020, during a stock market frenzy fueled by record low interest rates and truckloads of pandemic-related stimulus spending from the U.S. government. The stock peaked at $161 shortly after its IPO, and is currently trading 84% below that price.
Because C3.ai is not profitable, we cannot value the stock based on the traditional price-to-earnings (P/E) ratio. Instead, we can use the price-to-sales ratio (P/S), which divides the company’s market capitalization by its last twelve months’ sales.
Based on that calculation, C3.ai stock trades at a price/earnings ratio of 9.6. That’s down significantly from the peak of over 80 in December 2020, which was an unsustainable valuation.
However, 9.6 is also a slight discount to the three-year average price-to-earnings ratio of 10.2 – excluding the 2020 period – suggesting the stock is relatively cheap at the moment:
AI PS Ratio data by YCharts
Thomas Siebel, CEO of C3.ai, believes AI is a mega-market event, similar to the birth of the Internet and the smartphone. He says the AI software market is currently worth $450 billion, with the potential to grow to $1.3 trillion by 2032. So Cathie Wood is not alone when it comes to her optimistic view of AI software.
Based on C3.ai’s current earnings, the company hasn’t even scratched the surface of its opportunity. Given the current share price, this could be a good time to buy for the long term.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends C3.ai and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.
