Cathie Wood’s Ark Funds Bet on AI Software’s Growing Potential

Cathie Wood, founder of Ark Investment Management, directs multiple exchange-traded funds (ETFs) concentrating on innovative technologies such as electric vehicles, robotics, and artificial intelligence (AI). Wood forecasts a major opportunity in the AI software sector, anticipating these companies could yield $8 in revenue per dollar spent on chips from suppliers like Nvidia.

Ark’s ETFs align with this outlook, holding significant positions in AI software stocks such as Tesla, Palantir Technologies, and Amazon. Furthermore, through the Ark Venture Fund, Wood has made investments in top AI software start-ups, including OpenAI, Anthropic, and Elon Musk’s xAI.

Investing in Promising AI Stocks

C3.ai (NYSE: AI) stands out as another company poised to benefit from this trend if Wood’s predictions hold true. C3.ai assists businesses across more than a dozen industries in accelerating their adoption of AI software applications. Investors may find its Stock a compelling long-term addition to their portfolios.

Stock charts on their smartphone with a laptop sitting on a table in the background.” src=”https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com%2Feditorial%2Fimages%2F809262%2Fa-person-looking-at-Stock-charts-on-their-smartphone-with-a-laptop-sitting-on-a-table-in-the-background.jpg&w=700″>

Image source: Getty Images.

Accessible AI Across Industries

C3.ai has launched over 130 ready-made AI applications that can be deployed within three months from the initial customer brief. These applications find extensive use in sectors like oil and gas, manufacturing, utilities, and financial services, enabling businesses to forecast equipment failures, reduce carbon emissions, enhance supply chain efficiency, and mitigate fraud.

Strategically, C3.ai has partnered with major cloud service providers: Amazon Web Services (AWS), Microsoft Azure, and Alphabet‘s Google Cloud. This collaboration benefits all parties: C3.ai gains access to a vast customer base, while cloud providers can expand their AI solution offerings, driving higher enterprise spending on their platforms.

Businesses benefit from deploying C3.ai’s applications seamlessly through AWS, Azure, and Google Cloud, which offer immense computing capacity for large-scale implementation. These platforms also maintain high-security measures, significantly diminishing risks associated with valuable internal data being exposed during AI model integration.

In its fiscal 2025 third quarter (ending January 31), C3.ai secured 47 new partner agreements, marking a 74% rise from the previous year. Notably, the company is collaborating with Microsoft Azure on a joint sales campaign involving 621 potential global accounts.

Image source: Getty Images.

Record Revenue with Notable Challenges

C3.ai reported a record $98.7 million in revenue during the fiscal 2025 third quarter, reflecting a year-over-year increase of 26%. This growth rate is an acceleration from the 18% reported last year, marking four consecutive quarters of 20% growth or more.

This positive trend is largely attributed to C3.ai’s transition to a consumption-based pricing model implemented two and a half years ago, allowing for quicker customer onboarding without extended negotiations. However, there is a caveat: while many tech companies are cutting costs, C3.ai continues to invest heavily in research, development, and marketing to enhance its product offerings and attract new customers.

This strategy, while beneficial for growth, resulted in a 10% increase in C3.ai’s GAAP (Generally Accepted Accounting Principles) net loss year-over-year for Q3, landing at $80.2 million. Alternatively, its non-GAAP loss, which excludes $62.6 million in stock-based compensation, was a more manageable $15.7 million.

Despite a significant cash position of $724 million in cash, equivalents, and marketable securities, allowing C3.ai to endure these losses temporarily, investor patience may wear thin if the trend continues, especially regarding the issuance of new shares, which would dilute current holdings and negatively impact returns. Profitability must eventually become a priority.

A Potential Value in C3.ai’s Stock

C3.ai went public in December 2020, quickly peaking at a record high of $161 before being deemed significantly overvalued with a price-to-sales (P/S) ratio exceeding 80. The initial enthusiasm around AI during a market boom drove this surge.

Following a sharp sell-off, C3.ai’s stock bottomed out in 2022, yet remains approximately 85% below its peak. However, its P/S ratio has moderated to a more reasonable level of 9.4, largely due to both the stock price decline and steady revenue growth in recent years.

According to a McKinsey and Company study from last year, about 72% of organizations utilize AI in at least one business function. Yet, only 8% employ AI in five or more functions, indicating that a majority of companies are still experimenting with this technology. As AI capabilities grow, broader deployment is likely, mirroring early cloud computing adoption.