1 hassle-free AI share to buy for $25 and keep for 10 years

C3. have (NYSE: AI) was one of the first artificial intelligence companies in the world. It was founded in 2009 and currently has a portfolio of over 40 ready-made software applications designed to help companies accelerate the adoption of artificial intelligence (AI).

C3.ai made a significant change to its business model two years ago and it is starting to pay off in the form of accelerating revenue growth. However, its stock remains 87% below its all-time high set during the tech frenzy of 2020.

C3.ai stock was undoubtedly overvalued then. But the company’s strong growth, combined with the substantial financial opportunity in the AI ​​industry, make it look like a very good value right now. Here’s why investors with $25 to spare might want to put it toward buying a share of C3.ai.

A unique way to play AI boom

C3.ai serves companies in 19 industries, many of which you wouldn’t typically associate with cutting-edge technologies like AI. These include manufacturing, oil and gas, utilities and more. It’s because C3.ai offers a unique value proposition — the company can deliver customized AI solutions to customers in as little as three months after an executive briefing.

The oil and gas giant Shellfor example, deployed more than 100 C3.ai applications across the organization. They are used to monitor over 10,000 pieces of equipment for predictive maintenance, which reduces the likelihood of catastrophic failure. Additionally, at one of Shell’s LNG plants, C3.ai asset optimization software reduced carbon emissions by 355 tons per day. That’s the equivalent of taking 28,000 vehicles off American roads.

C3.ai sells its AI software directly to customers, but also has sales partnerships with tech giants such as Microsoft, Amazonand Alphabet. They offer C3.ai’s applications on their cloud platforms, putting them in front of millions of customers that the company would not otherwise have access to.

In the first quarter of fiscal 2025 (ended July 31), C3.ai completed 51 deals through its partner network, a 155% increase over the year-ago period. They accounted for 72% of C3.ai’s total transaction flow, highlighting the importance of its partnerships.

Accelerating revenue growth

C3.ai generated record revenues of $87.2 million in Q1, representing a 21% year-over-year increase. It also marked the sixth consecutive quarter of accelerated growth, which is a direct result of a shift in strategy within the company two years ago.

At the start of C3.ai’s 2023 fiscal year (which began on May 1, 2022), the company told investors that it would switch from a subscription-based revenue model to a consumption model. The goal was to eliminate long negotiation periods with customers, allowing them to join C3.ai with less friction and allowing them to pay only for what they use.

The story continues

The company warned investors that the change in strategy will lead to a temporary slowdown in its revenue growth while it transitions existing customers to the new model. Near the end of fiscal year 2023, its revenue actually started decrease compared to the period a year ago. However, the assumption was that consumer pricing would lead to much faster customer acquisitions, leading to an acceleration in revenue growth going forward. That seems to be happening now.

C3.ai’s accelerated growth is more impressive when you consider that the company is carefully managing its costs to improve its bottom line. That means it spends less aggressively on growth-oriented initiatives like marketing. C3.ai’s total operating expenses were up just 8.8% year-over-year in Q1. As revenue grew faster, this led to a 2.4% reduction in its net loss from the year-ago period to $62.8 million.

However, on a non-GAAP basis, C3.ai’s net loss was only $6.8 million. The company issued $54.6 million in stock-based compensation to its employees during the quarter (which is a non-cash expense). Diluting C3.ai’s bottom line further shows that it delivered $7.1 million in free cash flow.

The company has $762 million in cash, equivalents and marketable securities on its balance sheet, so generating positive free cash flow will protect that position and reduce the likelihood that it will need to raise capital in the near future.

Why C3.ai Stock is a Buy Now

C3.ai went public in December 2020 amid a frenzy in the tech sector driven by trillions of dollars in pandemic-related US government stimulus spending and low interest rates. C3.ai’s share price peaked at $161 that very month, at which point it traded at an extraordinary price-to-sales (P/S) ratio of around 80.

The 87% drop in stock price, plus the company’s revenue growth since then, pushed that P/S ratio to just 7.7. It is currently 29% below its three-year average of 10.8 (which excludes the highs of the 2020 period).

Since C3.ai’s revenue growth is currently accelerating, I’d argue that it should trade above the average P/S ratio — especially since management’s guidance for the upcoming fiscal second quarter 2025 (ended Oct. 31) points to further acceleration of incomes. increase, up to 28%.

According to a recent PwC survey, around 70% of top executives expect AI to significantly change the way their organization creates value in the next three years. Not all of these companies will be able to develop AI from scratch, so many will look to solutions like those provided by C3.ai. PwC also expects AI to add $15.7 trillion in value to the global economy by 2030, so the financial opportunity is enormous.

Investors may want to take advantage of C3.ai’s steep decline by adding it to their portfolios, as the next decade could be transformative for the company.

Should you invest $1,000 in C3.ai right now?

Before buying shares in C3.ai, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and C3.ai was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $630,099!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns as of September 3, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the shares mentioned. The Motley Fool has positions and recommends Alphabet, Amazon and Microsoft. The Motley Fool recommends C3.ai and recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

1 AI-Free Stock to Buy for $25 and Hold for 10 Years was originally published by The Motley Fool