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shares of Palantir Technologies (PLTR -0.53%) It soared an astounding 30% on February 6, on the back of growing demand for artificial intelligence (AI) software solutions, after the company announced strong Q4 2023 financial results the previous day. Ta.
But Palantir wasn’t the only company whose stock rose following the quarterly report.Its strong results had a positive impact on pure enterprise AI software providers C3.ai (A.I. 6.07%), the latter’s stock price rose nearly 8% on the same day. The reason C3.ai’s stock price soared after Palantir’s results may be due to strong demand for its AI software.
Palantir closed 103 impressive deals last quarter, each worth more than $1 million. This is a double increase compared to the same period last year, noting that the implementation of the company’s artificial intelligence platform (AIP) is “driving conversion for both new and existing customers.” Customer expansion. ”
Additionally, Palantir’s commercial customer count grew 44% year over year last quarter, and commercial revenue increased 32% to $284 million. There is no doubt that these metrics from Palantir do paint a healthy picture of the AI software market. But can C3.ai take advantage of this opportunity and deliver healthy profits like its larger competitors? Let’s find out.
C3.ai is not Palantir, but it has plenty of room to grow
Palantir made a name for itself by building and deploying an AI software platform used by U.S. intelligence agencies to support counterterrorism operations.
And now the company’s commercial business is gaining solid traction. The hundreds of bootcamps Palantir held last year helped commercial customers understand how to integrate AI into their operations, helping the company win new customer accounts and drive more business from existing accounts. became.
Meanwhile, C3.ai also provides enterprises with a software platform that allows them to build and deploy AI applications. So while C3.ai and Palantir are targeting similar markets, the latter’s long experience providing AI solutions to government agencies appears to have given it a head start in this market.
This is evidenced by the fact that Palantir’s fourth quarter commercial revenue of $284 million is equal to the total revenue generated by C3.ai over the past 12 months. Additionally, Palantir ended 2023 with revenue of $2.23 billion, while C3.ai’s revenue for the current fiscal year is expected to reach $306 million.
So C3.ai has a long way to go before it approaches Palantir, which was ranked the top provider of AI software platforms in 2021 by market research firm IDC. However, the good news for investors is that there is a huge opportunity in the enterprise AI market, which according to Mordor Intelligence is expected to register annual growth of 52% through 2029, with annual revenue of 2,040 at the end of the forecast period. It is expected to reach $1 billion.
Therefore, C3.ai has a lot of room to grow in this market in the long term. Due to the business model transformation, the company’s growth is expected to accelerate in the coming years.
Potential for future growth acceleration
C3.ai stock has fallen 44% since hitting a 52-week high in mid-June last year. That’s because the company’s growth has slowed in recent quarters due to changes in its business model. C3.ai switched to a pay-as-you-go business model about a year and a half ago. Previously using a subscription-based model, C3.ai was able to lock customers into long-term contracts, giving them visibility into revenue.
However, this switch means customers will pay a fee when using C3.ai’s enterprise AI software products. The company made this move to make it easier for customers to sign up for its solutions and eliminate the need for lengthy negotiations. However, C3.ai’s management noted that the transition will initially compress margins and flatten revenue growth.
This explains why C3.ai’s revenue for fiscal year 2023 (ending April 2023) was only $267 million, up 5.6% year over year. The positive is that C3.ai is nearing the end of the second phase of its business model transition, during which it is seeing improvement in trading activity and customer spending. In the next phase, which is expected to begin within the next few quarters, C3.ai projects strong revenue growth and improved margins.
This helps explain why the company expects to end fiscal 2024 with revenue between $295 million and $320 million. At the midpoint, this equates to 15% year-on-year growth. Even better, analysts expect its growth to accelerate in the coming years.
AI revenue prediction for current year data by YCharts
It’s also worth noting that analysts expect C3.ai’s revenue to grow at a whopping 50% annually over the next five years. For comparison, Palantir is projected to increase its annual revenue by 85% over the next five years. But Palantir stock’s 163% rise over the past year means investors would have to pay a hefty valuation to buy it now.
Currently, Palantir has a price-to-sales ratio of 22.6x, which is higher than C3.ai’s sales multiple of 10.5x. It is also worth noting that Palantir’s sales are expected to increase by 20% in 2024 and 2025. Meanwhile, we can see from the previous graph that C3.ai’s revenue could also start growing at a similar rate from the new fiscal year starting in May. 2024.
All of this could make C3.ai a solid alternative for investors looking to buy AI software stocks right now, especially considering Palantir’s meteoric rise has sent its valuation through the roof. It shows that.
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