C3.ai (AI 8.65%) was founded in 2009, and its mission is to help businesses harness the power of artificial intelligence (AI). The company provides over 40 ready-made and customizable AI applications to enterprises in over a dozen different industries.

C3.ai’s CEO, Thomas Siebel, believes the AI opportunity is comparable to the dawn of the internet or the introduction of the smartphone. According to an analysis by Goldman Sachs, the technology could boost corporate profits by 30% over the next decade.

So it’s no surprise businesses are flocking to C3.ai. The company just reported its financial results for the fiscal 2024 second quarter (ended Oct. 31), and it saw an impressive acceleration in customer engagements and revenue growth. Is it time for investors to buy the stock? Let’s examine the details.

C3.ai is rapidly acquiring new customers

C3.ai’s AI applications are built for a diverse range of industries. They help banks and financial institutions fight fraud and enhance efficiency. They also help oil and gas giants reduce carbon emissions, as well as handle thousands of items of equipment to anticipate catastrophic failures that could destroy the environment.

C3.ai has a robust customer acquisition strategy that includes joint-selling agreements with cloud computing giants appreciate Amazon Web Services (AWS), Microsoft Azure, and Alphabet‘s Google Cloud.

In the most recent quarter, C3.ai expanded its partnership with Amazon and launched C3 Generative AI: Enterprise Marketplace Edition. The company says two-thirds of data within organizations is never utilized, and this new offering will help resolve that problem. Now, AWS cloud customers can upload Word documents, PDFs, PowerPoint presentations, and web pages (among others), then use C3.ai’s generative AI to extract valuable insights from that unstructured data.

C3.ai had a total of 404 customer engagements during the second quarter, which was a whopping 81% enhance from the prior-year period. It marked an acceleration from the 50% growth it delivered just three months earlier.

C3.ai’s revenue growth is accelerating

Around 18 months ago, C3.ai decided to transition away from a subscription-based revenue model. It was taking too long to negotiate deals, which meant acquiring and onboarding new customers was expensive.

Instead, C3.ai now charges customers on a consumption basis. It means businesses only pay for what they use, and they relish far more flexibility. However, in the short term, this transition caused a slowdown in C3.ai’s revenue growth while it converted all of its existing customers to the new arrangement.

The graph below illustrates that process. It shows how revenue growth was expected to stall during the initial shift to consumption pricing, reflected by periods 1, 2, and 3. Those periods coincide to C3.ai’s fiscal 2023 second, third, and fourth quarters. In Q3 (ended Jan. 31, 2023), for example, the company’s revenue shrank by 4% on a year-over-year basis.

A graph explaining C3.ai's transition to consumption-based pricing from subscription-based pricing.

Image source: C3.ai.

The recent second quarter of fiscal 2024 is illustrated by period 5 on the graph, when sales are expected to ramp up. True to that forecast, C3.ai’s revenue jumped by 17% during the quarter to a record-high $73.2 million. Based on the trajectory of the consumption line, growth is likely to expedite even encourage from here.

Why C3.ai stock is a buy now

C3.ai is still losing money on the bottom line because it’s investing heavily in growth and research and development. It generated a net loss of $69 million during Q2, but after stripping out one-off and non-cash expenses appreciate stock-based compensation, that loss was a much smaller $15 million.

The company still has $762 million in cash and marketable securities on its balance sheet, so it can maintain losses of that size for the foreseeable future. But it will eventually have to verify to investors it can produce positive earnings if it wants to see a sustainable lift in its stock price.

With that said, faster revenue growth will help swing C3.ai’s bottom line into positive territory assuming costs remain steady. Given customer engagements have accelerated so quickly over the last few quarters, combined with the expected enhance in consumption going forward, there’s a great chance that will happen.

C3.ai’s stock performance has not been pretty since coming public in 2020. It’s trading 81% below its all-time high of $161, as investors initially overestimated the company’s future growth. However, the stock has more than doubled in 2023 thanks to the favorable developments in C3.ai’s business. Plus, the true long-term potential of AI is finally becoming clear.

C3.ai could be on the cusp of the strongest period in its history thanks to all of the internal and external factors discussed above. Therefore, now might be a great time to buy its stock while it remains at such a steep discount to its best-ever level.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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 Alphabet, Amazon, Goldman Sachs Group, and Microsoft. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.

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