Cathie Wood is the founder of Ark Investment Management, which operates several exchange-traded funds (ETFs) focused on innovative technologies like electric vehicles, robotics, and artificial intelligence (AI). Wood thinks software companies are the next major opportunity in the AI space, predicting they could generate $8 in revenue for every dollar spent on chips from suppliers like Nvidia.

Ark's ETFs reflect that view, with large holdings in AI software stocks like Tesla, Palantir Technologies, and Amazon. Through the Ark Venture Fund, Wood has also invested in several top AI software start-ups, including OpenAI, Anthropic, and Elon Musk's xAI.

C3.ai (AI -1.80%) is another company that could win big if Wood turns out to be right. It's helping businesses in more than a dozen industries accelerate their adoption of AI software applications. Here's why investors might want to add its stock to their portfolio for the long term.

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Accessible AI for businesses in any industry

C3.ai has developed over 130 ready-made AI applications that can be deployed in as little as three months from the date of an initial customer briefing. These applications are used extensively in industries such as oil and gas, manufacturing, utilities, and financial services, helping businesses predict potential equipment failures, reduce carbon emissions, improve the efficiency of supply chains, and even identify fraud.

C3.ai has built a powerful network of partners, which includes the world's largest cloud services providers: Amazon Web Services (AWS), Microsoft Azure, and Alphabet's Google Cloud. It's a win-win for all parties involved: C3.ai gains access to a gigantic pool of new potential customers, and the cloud providers can offer a broader range of AI solutions, which encourages more enterprise spending on their platforms.

Businesses can seamlessly run C3.ai's applications through AWS, Azure, and Google Cloud, which is highly beneficial for several reasons. For instance, those providers offer enormous computing capacity that businesses can use to deploy C3.ai's software at scale. They are also highly secure, reducing the risk of valuable internal data leaking into the hands of malicious third parties when it's plugged into AI models.

During C3.ai's fiscal 2025 third quarter (ended Jan. 31), it closed 47 new agreements through its network of partners, a 74% increase from the year-ago period. Moreover, the company said it was working on a joint sales campaign with Microsoft Azure alone, which involves 621 potential accounts spread around the world.

Image source: Getty Images.

Record revenue, but there is a caveat

C3.ai generated a record $98.7 million in revenue during the fiscal 2025 third quarter, which was a year-over-year increase of 26%. That growth rate marked an acceleration from the year-ago level of 18%, and the company's revenue has now increased by 20% or more for four consecutive quarters.

The strong momentum is being driven by C3.ai's shift to consumption-based pricing two and a half years ago, which is now starting to pay off in the form of faster growth. By moving away from the old subscription revenue model, the company eliminated lengthy negotiating periods to onboard new customers far more quickly.

But there is one downside to C3.ai's recent results. While many of its peers in the tech sector have recently been slashing costs to improve their bottom lines, the company is still spending an increasing amount of money on things like research and development and marketing to continue expanding its product portfolio and acquire new customers.

That isn't a bad thing at face value, except that C3.ai's GAAP (generally accepted accounting principles) net loss grew by 10% year over year during Q3, coming in at $80.2 million. The loss came in at a more reasonable level of $15.7 million on a non-GAAP basis because that metric excluded $62.6 million in stock-based compensation, which is a non-cash expense.

C3.ai had $724 million in cash, equivalents, and marketable securities on its balance sheet at the end of the third quarter, so it can afford to sustain losses of that size for the foreseeable future. However, investors might eventually lose patience with the company issuing new shares to raise money because it dilutes their holdings and negatively impacts their returns. So, profitability will have to become a priority at some point.

C3.ai stock might be a good value right now

C3.ai went public in December 2020, and its stock hit a record high of $161 that very month. However, it was extremely overvalued back then, with its price-to-sales (P/S) ratio soaring above 80. Investors were eager to rush into this exciting new AI story during an exuberant time in the stock market on the whole.

The stock suffered a steep sell-off a short time later, and although it bottomed out in 2022, it's still trading 85% below its record high. On the bright side, its P/S ratio is now at a more reasonable level of 9.4, thanks not only to the decline in stock price but also to the company's solid revenue growth over the last few years:

AI PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.

According to a study last year by McKinsey and Company, around 72% of organizations use AI in at least one business function. However, just 8% of them are using AI in five functions or more, which suggests most companies are still in the experimental phase of adoption. As the technology becomes more proficient, companies are likely to deploy it more broadly -- the same way they initially used cloud computing for simple workloads, like data storage and web hosting, but now use it to run their entire operations.

Many of those companies will turn to third-party providers like C3.ai to fulfill their needs because it's faster and more cost-efficient than developing in-house AI applications from scratch. This is why, as Cathie Wood suggests, AI software could be a far more valuable opportunity than hardware in the long run. It can be sold repeatedly to a near-limitless number of customers, whereas only a small group of trillion-dollar companies account for most of the spending on data centers and chips.

In fact, C3.ai CEO Thomas Siebel thinks the addressable market for enterprise AI could be worth $1.3 trillion by 2032 (citing research by Bloomberg). The company hasn't even scratched the surface of that opportunity based on its current revenue, so its stock could be a great buy for the long term.