1 42% High Growth Stock to Buy Right Now

The last six months have been terrible for C3. have (AI 0.51%) investors as shares of the enterprise AI software provider fell sharply after a solid start to 2024. The stock price has fallen 42% since hitting a 52-week high on February 29. The company’s latest quarterly results only added to the surrounding bearish sentiment. the stock.

C3.ai published its fiscal first quarter 2025 results (for the three months ended July 31) on September 4. Investors hit the panic button following the company’s report, even though it reported better-than-expected numbers. What’s going on here? More importantly, could this sharp decline in the company’s share price in recent months be a buying opportunity for investors looking to capitalize on growing demand for artificial intelligence (AI) software?

C3.ai’s growth has accelerated, but it comes at a cost

C3.ai reported fiscal first quarter revenue of $87.2 million, a 21 percent increase over the same quarter last year, when the top line grew just 11 percent. This was the fifth consecutive quarter in which the company’s revenue growth accelerated.

The first-quarter top line beat analysts’ consensus estimate of $86.9 million. Additionally, the company’s adjusted loss decreased to $0.05 per share from $0.09 per share in the year-ago period. Wall Street expected the company to post a non-GAAP (adjusted) loss of $0.13 per share.

Slower-than-expected growth in the company’s subscription revenue, which rose 20 percent year-over-year to $73.5 million but fell short of the consensus estimate of $79.1 million, was one of the reasons why the market reacted negatively to the C3.ai results. In addition, the company expects its non-GAAP loss from operations to increase from $16.6 million in the previous quarter to $30.7 million in the current quarter, in the middle of the guidance range.

That would also be higher than the $25 million non-GAAP loss it reported in the same period last year. C3.ai’s management emphasized on its most recent earnings conference call that its increased losses are a result of its efforts to win more business as well as its focus on improving its sales force. According to CFO Hitesh Lath:

We continue to expect near-term pressures on our gross margins due to (a) higher pilot mix, which implies a higher cost of revenue during the pilot phase of the customer lifecycle. We also expect short-term pressures on our operating margin due to additional investments we are making in our business, including our sales force, research and development and marketing expenses.

Lath added that C3.ai will be cash-flow negative in the current quarter and next. However, he forecasts the company will turn free cash flow positive in Q4 and remain free cash flow positive for the full fiscal year. Another thing worth noting here is that C3.ai’s revenue growth rate is now outpacing the growth rate of its operating expenses.

AI Revenue Data (Quarterly) by YCharts

The reason this happens is that C3.ai’s “cost of goods sold” is substantially lower than our cost of generating revenue, according to CEO Tom Siebel. Management believes its revenue growth rates are likely to outpace expense growth rates, even as C3.ai continues to focus on winning a larger share of the fast-growing enterprise AI software market.

A look at the big picture

The bright side is that C3.ai’s focus on getting more business is paying off. The company closed 71 deals with customers last quarter, up from 32 in the year-ago period. It’s also worth noting that he’s now getting bigger deals with customers. For example, it closed two deals valued between $5 million and $10 million last quarter, compared to none in the same period last year. The number of deals between $1 million and $5 million also rose from nine last year to 11 last quarter.

Improved transaction activity explains why C3.ai expects another quarter of acceleration in its top line in Q2. It expects revenue of $88.6 million to $93.6 million in the current quarter, which would translate to year-over-year growth of about 24.5% in the middle.

C3.ai reiterated its full-year revenue guidance range of $370 million to $395 million, which would be a 23% increase from last year. But it won’t be surprising to see its annual revenue reach the high end of its guidance range if its deal activity continues to improve. The company’s generative AI offerings are gaining traction with both government and commercial customers.

Additionally, the generative AI software market is expected to generate annual revenue of $52 billion in 2028, compared to $5.1 billion last year. So there is a good chance that the company will be able to sustain its improved growth levels in the long run.

With C3.ai stock trading at less than 8x sales (a major discount to peer Palantirprice-to-sales ratio of 29), investors looking for an AI stock that is not overpriced and looks capable of delivering healthy long-term gains may consider using the pullback to buy the stock as it could become a long-term winner . run.