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This will be a big year for artificial intelligence (AI).

Rapid improvements in technologies like machine learning algorithms, natural language processing, and AI chips make AI systems more capable, efficient, and versatile. Unsurprisingly, a growing number of new AI-driven applications and services -- such as ChatGPT -- are debuting in the market.

Investors, understandably, are rushing to get on board the AI trend by investing in companies like Nvidia and Palantir. But there's a lesser-known company worth keeping an eye on: C3.ai (NYSE: AI).

An early mover in the AI software industry

When ChatGPT released its service by the end of 2022, it took the tech world by storm. Until then, AI had been a nice-to-have (but not necessary) feature that does not make it to the top of the minds of most corporations.

But thanks to the advancement of generative AI, ChatGPT and a series of other AI apps demonstrate how AI can transform how we do important things in life, like write, work, and code. More importantly, it highlights the existential risk for those who choose to ignore it, whether individuals or corporations.

While most were unprepared for this, C3.ai has been positioning itself for the arrival of the AI era. Founded in 2009 by Thomas Siebel (who earlier founded and sold its customer relationship management company Seibel Systems to Oracle), C3.ai is an enterprise AI software company. It provides its services mainly under the software-as-a-service (SAAS) business model.

C3.ai provides its services mainly under two categories. The first category is C3 AI Suite, the core technology platform allowing clients to rapidly design, develop, and deploy enterprise AI applications. This platform helps clients build tailored applications to help address their specific requirements.

The other category is C3 AI Applications, a set of ready-made applications that can be installed and used immediately. These applications are usually industry-specific apps designed and developed earlier using C3 AI Suite, but they can be applied across different companies within the same industry.

By moving early into the industry and investing a huge sum (the company accumulated a deficit of $1.1 billion), c3.ai has made solid strides over the years, securing major companies as their clients. Shell, AstraZeneca, Baker Hughes, Koch, and the U.S. Air Force are examples of its customers.

C3.ai reported some solid progress lately

When C3.ai went public in 2020, it delivered a remarkable revenue growth of 71% in the fiscal year ending April 30, 2020. Investors expected the company to grow at those elevated rates, but that didn't happen. Instead, revenue growth decelerated since then, reaching a low of negative 4% in the third quarter of the fiscal year ended April 30, 2023.

But since then, C3.ai made a solid comeback as revenue growth has reached 20% in the latest quarter. Revenue reached a new high of $87 million , of which 92% was from subscription revenue.

The tech company also made notable progress across critical metrics. For instance, it secured 191 agreements in fiscal year 2024, up 52% year over year. Customer engagement also surged by 70% as the demand for AI applications jumped, particularly for generative AI-related applications.

C3.ai CEO and Chairman Thomas Siebel remarked :

Demand for Enterprise AI is intensifying, and our first-to-market advantage in Enterprise AI positions us well to capitalize on it. Our Enterprise AI applications have been adopted across 19 industries, underscoring increasing market diversity. Our federal revenue grew by more than 100% for the year. The interest we are seeing in our generative AI applications is staggering.

The growing awareness and interest in AI software has given the whole industry a significant push in 2023, with another leading AI software company, Palantir, reporting solid growth in the recent quarter. If this trend continues, it won't be surprising to see C3.ai reporting even stronger numbers in the coming quarters.

But there are still plenty of uncertainties to consider

There are plenty of reasons to like C3.ai. It has an early-mover advantage and operates in a vast industry estimated at $271 billion in 2024. Still, there are uncertainties to consider.

Investors should consider whether the current interest in AI is a sustainable trend or a fad that will eventually subside in the coming quarters. Will it be game changing, or will it be like the metaverse hype of 2022/2023?

Besides, C3.ai stock trades at a rich valuation, with a price-to-sales (PS) ratio of 11.1 times. For a small and unprofitable company, such a valuation is on the higher end if we compare it to well-established companies like Alphabet, which has a P/S ratio of 7.5 times.

In other words, while C3.ai is a company worth paying attention to, investors should consider the risks involved before committing their hard-earned capital.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Palantir Technologies. The Motley Fool recommends AstraZeneca Plc and C3.ai. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.