Anticipated Surge: Expectation of C3.ai Shares' Increase Following December 9th
Anticipated Surge: Expectation of C3.ai Shares' Increase Following December 9th
C3.ai (AI with a 3.16% growth rate) was the first enterprise-level artificial intelligence (AI) company when it was established in 2009. They have developed over 40 customizable AI software applications intended to aid businesses in hastening their AI integration.
Due to a shift in C3.ai's business strategy two years ago and the surging demand for its AI applications, the company is currently experiencing a significant surge in its revenue growth. On December 9, C3.ai is set to release its financial results for its fiscal 2025 second quarter (ending October 31), and another robust financial performance is expected.
Here's why I anticipate C3.ai's stock to surge following the Q2 report's analysis:
Addressing a crucial void in the AI field
Creating AI software applications from scratch can be exorbitantly costly and requires specialized talent and expertise. Not every organization possesses these assets, which is why C3.ai's pre-made applications are highly sought after in non-technological industries such as manufacturing, financial services, and oil and gas.
C3.ai has published several case studies demonstrating its applications' effectiveness. A prominent American industrial manufacturing company with an annual revenue of $30 billion sought C3.ai's assistance to decrease its inventory holding costs. They adopted the C3.ai Inventory Optimization application, which utilizes data from historical sales and production orders to predict the appropriate inventory quantity.
The manufacturer was able to decrease its inventory by up to 35% through the application, resulting in annual savings between $100 million and $200 million.
Similarly, oil and gas giant Shell has collaborated with C3.ai for years to manage trillions of rows of data generated by thousands of equipment items. They have over 100 AI applications in various stages of development, aiding them in emissions reduction, predictive maintenance (to prevent catastrophic failures), among other tasks.
C3.ai markets its applications directly to customers and also through partnerships with cloud giants like Amazon Web Services and Microsoft Azure. During the fiscal 2025 first quarter (concluding July 31), C3.ai secured 51 customer agreements through these partners, marking a staggering 155% increase from the previous year. This highlights the substantial demand for C3.ai's AI applications in the corporate sector.
Revenue growth to further accelerate in Q2
At the start of C3.ai's fiscal 2023 (beginning May 1, 2022), the company announced plans to transition from a subscription-based revenue model to a consumption-based model. The aim was to eliminate lengthy negotiation processes, allowing customers to sign up quicker and pay only for the used services.
C3.ai informed investors that the transition would lead to a temporary decline in its revenue growth while customers transitioned to the new model due to the time required for consumption to increase. As anticipated, C3.ai's revenue growth stagnated within four quarters of the announcement.
However, the company has since recorded six consecutive quarters of revenue growth acceleration, resulting from the shift to consumption pricing, as anticipated:
C3.ai generated an all-time high revenue of $87.2 million during the fiscal 2025 first quarter, marking a 21% increase from the previous year. It was the fastest rate of quarterly growth in two years.
This acceleration is projected to continue. According to Wall Street's consensus estimate (obtained from Yahoo!), C3.ai could generate $91 million in revenue during Q2, signifying a 24% jump from the previous year. However, C3.ai's guidance suggests revenue could surge by up to 28%.
C3.ai stock could surge following its Q2 results
C3.ai stock is currently 83% below its all-time high, set during the late 2020 tech frenzy. The stock's decline, coupled with the company's revenue growth since 2020, has reduced its price-to-sales (P/S) ratio to just 9.7 as of current writing. This represents a 40% discount to its average of 16.1 since its public debut.
Since the P/S ratio divides a company's market capitalization by its trailing-12-month revenue, investors typically pay a premium valuation when revenue is expanding rapidly. Therefore, I anticipate C3.ai stock to trend upward – potentially even towards its average P/S ratio, implying an upside of 65% in the stock.
Past performance does not guarantee future results, but C3.ai stock has risen by 13% since reporting its Q1 results, which could bode well for its upcoming Q2 report.
While there's reason to be optimistic about potential growth for C3.ai stock in the near future, investors should always focus on the long term. AI could be a multiyear technological revolution, as C3.ai CEO Thomas Siebel suggests, comparing it to the dawn of the internet and the smartphone.
Quoting research by Bloomberg, Siebel believes the AI opportunity will be worth an astronomical $1.3 trillion by 2032, so investors will need to be patient if they wish to capture as much of that value as possible.
After analyzing the Q2 report, investors might be attracted to C3.ai's stock due to its expected revenue growth. Given the shift to a consumption-based pricing model, Wall Street's consensus estimate suggests a 24% increase in revenue from the previous year, while C3.ai's guidance indicates a potential surge of up to 28%. (Containing words: 'investors', 'revenue', 'growth')
With its focus on AI applications, C3.ai has gained significant attention in various industries, including manufacturing, financial services, and oil and gas. This has allowed the company to secure over 50 customer agreements through partnerships with cloud giants like Amazon Web Services and Microsoft Azure, marking a 155% increase from the previous year. (Containing words: 'company', 'focus', 'partnerships')