Where will C3.ai stock be in three years?

The last three years have been terrible. C3.ai (AI 4.53%) During this period, investors as the company’s stock lost nearly half of its value. But the good news is that stocks are starting to show signs of life once again.

The biggest reason why C3.ai stock has been sanctioned so far is because of the business model transition that began in fiscal 2023. We changed our pricing model for the first quarter of our fiscal year (ending July 2022) to a consumption-based pricing model.

The move was intended to lower the barrier to entry for customers looking to deploy the company’s AI software solutions and help increase sales. However, sales took a hit in some quarters as the consumption model meant the company was no longer receiving monthly subscriptions from customers and was unable to sign long-term contracts. This can be seen in the chart below.

Data from YCharts.

However, the chart above shows that C3.ai is starting to grow once again. But can the company maintain this momentum over the next three years and deliver clear returns to investors? Let’s explore.

Accelerate growth with C3.ai’s business model transformation

When C3.ai transitioned to a consumption-based model a few years ago, executives noted that the transition would take seven quarters to complete. The company expects customers to transition to a consumption-based model by the eighth quarter, with sales growth accelerating thereafter.

The good thing is that management’s predictions are actually coming to fruition. In the fourth quarter of fiscal 2024 (the eighth quarter since the transition began), revenue increased 20% year-over-year to $86.6 million. That’s a big jump from the flat sales growth the company reported in the same quarter a year ago.

It’s also worth noting that C3.ai ended its most recent fiscal year (ended April 30) with revenue up 16% to $310.6 million. This is a significant improvement over the 5% revenue growth recorded in fiscal 2023. In fiscal 2025, C3.ai expects revenue to increase 23% to $382.5 million (midpoint). I think the business is growing.

CEO Tom Siebel’s comments on the May earnings call suggest interest in C3.ai’s AI software solutions remains strong. Existing customers’ use of the product has increased, and inquiries from new customers have also increased significantly. According to Siebel:

In the fourth quarter alone, we received nearly 50,000 inquiries from 3,000 companies, each with more than $500 million in revenue, all expressing interest in our generative AI applications. During February 28 alone, it was between 50,000 and 10,500. Currently, we expect inquiries to expand to 90,000 in the first quarter of 2025.

It’s worth noting that C3.ai signed 191 contracts with customers last fiscal year. This is a 52% improvement over the previous year. Given that the company is participating in 123 pilot projects, it is likely that it will sign more contracts in the future and continue to build a solid revenue pipeline.

This explains why analysts are predicting stronger revenue growth over the next three years.

Data from YCharts.

These major improvements could cause the stock to skyrocket over the next three years.

C3.ai ended fiscal 2024 with a non-GAAP net loss of $0.47 per share. This is higher than the loss per share of $0.42 it reported in the prior year. The losses will increase further this fiscal year. However, as the following chart shows, analysts expect C3.ai’s losses to narrow in fiscal 2026, and the company could report non-GAAP earnings the following year.

Data from YCharts.

This is not surprising, as C3.ai management expects non-GAAP gross margins to remain in the high end of the 70% range now that the business model transition is complete. For comparison, C3.ai ended fiscal 2024 with a non-GAAP gross margin of 69%.

Stronger revenue growth, combined with rising company margins, will likely help C3.ai increase profitability over the next three years. Moreover, the enormous opportunity in the AI ​​software market, which could be worth $52 billion by 2028, suggests that C3.ai could be at the beginning of a massive growth curve.

All of this suggests that C3.ai’s stock price performance over the next three years could be much better than what it has delivered over the past three years. That’s why investors looking to add AI stocks to their portfolios should consider buying them since the latest earnings report appears to have sparked a bull market.