C3.ai (AI 3.29%) was supposed to be a big beneficiary from the emergence of ChatGPT and the growing interest in artificial intelligence (AI). The company, after all, provides a wide range of AI services to customers in various industries. But, for the most part, there hasn't been a big surge in C3.ai's business until recently. And as a result, the excitement around the stock has cooled in the past few years.
But C3.ai CEO Tom Siebel still sees the interest in AI and chatbots as a big tailwind for the company. And based on its most recent results, that may end up being the case.
The build vs. buy debate in AI
AI provides businesses with powerful new tools and ways to improve their day-to-day operations. But undoubtedly, building new AI applications can be daunting and challenging. And while they seem like exciting opportunities, it may not be practical to build those applications from scratch. Not only is that time consuming, but it can be incredibly costly for businesses that are still new to AI.
That's where C3.ai can come to the rescue. On its most recent earnings call, Siebel claimed executives are already too busy with existing projects to be able to take on complex AI initiatives. "Most CIOs have their hands full trying to install single sign-on, trying to get their security firewalls to work," he said. C3.ai can simplify that process for its customers with its existing offerings.
One of the reasons customers may not be ready to adopt C3.ai solutions, however, is that they are still experimenting with new AI capabilities. Siebel said, "Today, many companies are dabbling in trivial AI projects or relying on outside integrators to try to cobble together something that works," and these efforts effectively become "large and expensive experiments."
Many C3.ai customers are starting to pivot to buying
As businesses learn and experiment with AI, C3.ai is finally starting to see a tailwind from the hype.
In its fiscal 2024 fourth quarter (ended April 30), the company posted great results, even exceeding its own guidance. Revenue of $86.6 million grew 20% year over year, and the company is optimistic about what's ahead. After reporting 16% top-line growth for the full year, management is projecting its growth will accelerate to 23% in fiscal 2025 (at the midpoint of the range). It has taken some time, but C3.ai's growth rate is finally showing some strength in this period of surging demand for AI.
Data by YCharts.
Has C3.ai become a growth stock worth buying?
C3.ai stock has rallied on its fourth-quarter results, but it's still down 3% year to date. While the earnings report was encouraging, this is still a fairly volatile investment that's down over 80% from its all-time high.
Many investors are still unconvinced C3.ai is the real deal in AI, and one good quarter isn't enough to change that outlook just yet. The business remains unprofitable, and it wasn't all that long ago when its growth rate had fallen off a cliff.
A wait-and-see approach may be the most appropriate option for investors who are considering C3.ai stock right now. The company needs to build on its recent performance to prove it's long-term prospects as an AI growth stock. And it will take at least a few more quarters of strong momentum to convince investors of that.
