C3.ai(NYSE: AI) was the world's first enterprise artificial intelligence (AI) company when it was founded in 2009. It has developed over 40 ready-made, customizable software applications designed to help businesses accelerate their adoption of AI.
Thanks to a change in C3.ai's business model two years ago, combined with soaring demand for its AI applications, the company is currently experiencing a rapid acceleration in its revenue growth. C3.ai will report its latest financial results for its fiscal 2025 second quarter (ended Oct. 31) on Dec. 9, and yet another strong top-line result is expected.
Here's why I think C3.ai stock will soar after investors digest the Q2 report.
Image source: Getty Images.
Filling a critical gap in the AI industry
Building AI software applications from scratch can be incredibly expensive, and it also requires the right talent and expertise. Not every organization has those resources, which is why C3.ai's turnkey applications are very popular in non-technology industries like manufacturing, financial services, and oil and gas.
C3.ai has published a number of case studies highlighting the effectiveness of its software. One American industrial manufacturing company with $30 billion in annual revenue approached C3.ai to help reduce its inventory holding costs. It adopted the C3.ai Inventory Optimization application, which uses data from historical sales and production orders to predict how much product to keep on hand.
The manufacturer was able to reduce its inventory by up to 35% by using the application, which is driving between $100 million and $200 million in annual savings.
Similarly, oil and gas giant Shell has worked with C3.ai for years to monitor trillions of rows of data generated by thousands of items of equipment. It has over 100 AI applications in various stages of development, which help the company do everything from reducing carbon emissions to conducting predictive maintenance, which can prevent catastrophic failures.
C3.ai sells its applications directly to customers, but also through partnerships with cloud giants like Amazon Web Services and Microsoft Azure. During the fiscal 2025 first quarter (ended July 31), C3.ai closed 51 customer agreements through those partners, which was a whopping 155% increase from the year-ago period. It highlights the substantial demand for the company's AI applications in the corporate sector.
Revenue growth is expected to accelerate again in Q2
At the beginning of C3.ai's fiscal 2023 year (which started on May 1, 2022), the company announced plans to shift from a subscription-based revenue model to a consumption-based model. The move was designed to eliminate lengthy negotiating processes, allowing customers to sign up more quickly and only pay for what they use.
C3.ai told investors the transition would lead to a temporary decline in its revenue growth while it shifted customers over to the new model, because it would take time for consumption to ramp up. As expected, C3.ai's revenue growth flatlined within four quarters of the announcement.
However, the company has since recorded six consecutive quarters of accelerating revenue growth, which was the expected payoff from the shift to consumption pricing:
Image source: C3.ai.
C3.ai generated a record $87.2 million in revenue during the fiscal 2025 first quarter, which was a 21% increase from the year-ago period. It was the fastest rate of quarterly growth in two years.
That acceleration is forecast to continue. According to Wall Street's consensus estimate for Q2 (provided by Yahoo!), C3.ai could generate $91 million in revenue, which would be a 24% jump from the year-ago period. However, C3.ai's guidance suggests revenue could grow by as much as 28%.
C3.ai stock could soar with help from its Q2 results
C3.ai stock is currently down 83% from its all-time high, which was set during the tech frenzy in late 2020. It was unquestionably overvalued back then, with its price-to-sales (P/S) ratio surging to around 80.
The decline in C3.ai stock, combined with the company's revenue growth since 2020, have pushed its P/S ratio down to just 9.7 as of this writing. That's a 40% discount to its average of 16.1 since the stock came public:
AI PS Ratio data by YCharts
Since the P/S ratio divides a company's market capitalization by its trailing-12-month revenue, investors will typically pay a premium valuation when revenue is growing quickly. Therefore, I think C3.ai stock could trend higher -- potentially even toward its average P/S ratio -- if the company's upcoming Q2 report shows a further acceleration in revenue growth. If its P/S does reach its long-term average, that would imply an upside of 65% in the stock.
Past performance doesn't predict future results, but C3.ai stock is trading 13% higher since reporting its Q1 results, which might bode well for its upcoming Q2 report.
While there is reason to be optimistic about potential upside for C3.ai stock in the weeks and months ahead, investors should always focus on the longer term. AI could be a multiyear technological revolution, which C3.ai CEO Thomas Siebel compares to the dawn of the internet and the smartphone.
Citing research by Bloomberg, Siebel believes the AI opportunity will be worth a whopping $1.3 trillion by 2032, so investors will have to stick around for the long run if they want to capture as much of that value as possible.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
