Investing in AI: C3.ai and Microsoft Slated for Growth

Ark Investment Management, led by its founder Cathie Wood, focuses on innovative tech stocks through various exchange-traded funds (ETFs). Wood envisions a bright future for software companies in the artificial intelligence (AI) sector, predicting a remarkable potential of earning $8 for every dollar spent on chips from suppliers such as Nvidia.

Since making this prediction last year, Wood has put her money where her mouth is by investing in AI start-ups like xAI, OpenAI, and Anthropic through the Ark Venture Fund. Furthermore, several of Ark’s ETFs showcase notable AI software stocks, including Amazon and Tesla.

Why C3.ai is a Strong Investment

Founded in 2009, C3.ai was the first enterprise AI company globally. Now, it offers over 100 AI applications that assist businesses in adopting cutting-edge technology. Its solutions have found a niche in traditional industries, such as energy, manufacturing, and financial services.

For example, Dow Chemical utilizes C3.ai’s Reliability application to monitor equipment efficiently, reducing downtime by 20%, which ultimately lowers costs and increases revenue. Similarly, a multinational bank implemented the C3.ai Anti-Money Laundering application and saw a 200% rise in the identification of suspicious transactions.

C3.ai engages directly with customers and also partners with major cloud platforms: Amazon Web Services, Microsoft Azure, and Alphabet‘s Google Cloud. By leveraging these platforms’ strength, C3.ai makes it easier for businesses to adopt its applications, especially since many companies already use these services.

In its fiscal 2025 second quarter, C3.ai reported a remarkable $94.3 million in revenue, up 29% year-over-year, marking seven consecutive quarters of growth. This success stems from a strategic shift two years ago to a consumption-based revenue model, allowing for quicker customer onboarding.

As the demand for AI tools expands, companies are likely to turn to accessible solutions like C3.ai, solidifying its potential as a valuable long-term investment.

Why Microsoft Remains a Top Contender

With a legacy of innovation, Microsoft has built a diverse software portfolio, including the Windows operating system, Azure cloud platform, and Office 365 applications. Its leadership in AI software has been augmented by an investment of nearly $14 billion in OpenAI, the creator of ChatGPT.

This partnership, established in 2019, contributed to the development of Microsoft’s Copilot AI assistant, which integrates with key software applications. For instance, Copilot in Office 365 helps users streamline text and graphic content creation, significantly enhancing productivity.

Currently, over 400 million Office 365 licenses are active globally, making each organization a potential customer for the additional monthly subscription for Copilot. Microsoft reports that 70% of Fortune 500 companies are already using Copilot, with daily user counts more than doubling in the first quarter of fiscal 2025.

Microsoft also offers Azure AI, which gives businesses access to advanced computing resources and leading large language models (LLMs), like OpenAI’s latest series. Despite the high demand for its AI infrastructure, Microsoft is actively investing around $20 billion to expand capacity.

Although Microsoft’s stock may seem pricier with a price-to-earnings (P/E) ratio of 36.2—10% above its 10-year average of 32.8—the forward P/E is estimated at 29.2. This suggests potential value for investors willing to hold the stock longer term.

If Cathie Wood’s predictions regarding AI software’s profitability hold true, Microsoft’s future could see returns potentially reaching hundreds of billions due to its infrastructure investments. Hence, it remains a compelling choice for AI-focused investors.

Seize the Opportunity: Double Down Stocks

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*Stock Advisor returns as of December 23, 2024

John Mackey, former CEO of Whole Foods Market, which is owned by Amazon, is part of The Motley Fool’s board. Suzanne Frey, an executive at Alphabet, is also on The Motley Fool’s board. Anthony Di Pizio has no positions in the mentioned stocks. The Motley Fool holds positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Tesla, while also recommending C3.ai and the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. For more details, check The Motley Fool’s disclosure policy.

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