The latest earnings call for <a href="https://seekingalpha.com/symbol/PLUS" alt="ePlus inc.">ePlus inc. (PLUS)</a> painted a picture of strategic maneuvering and calculated risk-taking in a challenging economic climate. While Q4 of fiscal 2024 saw a decline in net income, attributed to a higher proportion of sales to large enterprise customers at tighter margins, the company maintains an optimistic outlook for fiscal 2025, projecting net sales growth between 3% and 6% and adjusted EBITDA in the range of $200 million to $215 million. But hidden within the narrative of shifting market dynamics and strategic investments lies a potential catalyst for explosive growth that seemingly flew under the radar of most analysts: the burgeoning potential of generative AI.

ePlus, with its deep roots in IT infrastructure and a forward-thinking approach, has been quietly positioning itself as a leader in the AI space for years. As early as 2018, the company was recognized as an Elite Level Deep Learning Partner for NVIDIA, a testament to its early recognition of AI's transformative potential. Now, with the launch of its AI Ignite program, ePlus is primed to capitalize on the surging interest in generative AI and its applications across a wide spectrum of industries.

While AI Ignite is currently in its initial stages, focusing primarily on consultative services like envisioning sessions and data strategy workshops, it represents a crucial first step in ePlus's AI journey. Mark Marron, CEO and President of ePlus, highlighted the program's role in helping customers grapple with the complexities of the AI landscape. He pointed out the common challenge of fragmented data ecosystems, emphasizing the need for a centralized data repository, robust governance, and a clear understanding of use cases to maximize AI's potential.

This emphasis on data strategy is where ePlus stands to gain significant ground. The company is not just selling AI as a standalone solution but positioning itself as a strategic partner in helping customers unlock the true value of their data. This approach resonates deeply with enterprises struggling to navigate the complexities of AI implementation and differentiate themselves in a data-driven world.

The potential rewards for ePlus are significant. As customers move from the exploration phase to actual implementation, ePlus, with its established expertise in IT infrastructure and services, is perfectly positioned to provide the necessary hardware and support for these computationally intensive AI models. This translates to a double-digit growth opportunity in both product and service revenue streams, potentially eclipsing the company's current projections.

Here's where the hypothesis gets interesting. In Q4, ePlus saw a significant increase in sales to large enterprise customers, albeit at lower margins. This can be interpreted as a land-and-expand strategy, with ePlus strategically pricing its products and services to gain a foothold in these key accounts. As these enterprises embark on their AI journeys, ePlus will be able to leverage its existing relationships to cross-sell and upsell its AI offerings, leading to a gradual expansion of margins.

Furthermore, the company's current cash balance of over $250 million provides ample ammunition for strategic acquisitions, allowing ePlus to bolster its AI capabilities and potentially acquire niche players with specialized AI expertise. This, coupled with the company's newly approved share buyback plan, showcases a strategic focus on both growth and maximizing shareholder value.

Looking at the numbers, ePlus's revenue growth in fiscal 2024 was largely driven by its technology segment, which saw a 6.5% increase in net sales. This growth was further fueled by a 10.4% increase in service revenue, highlighting the importance of ePlus's service offerings in bolstering its overall performance. As AI adoption gains momentum, ePlus can expect to see even more pronounced growth in both its technology and service segments, potentially pushing its revenue growth into double-digit territory.

Revenue Growth in Fiscal Year 2024

The key takeaway? While ePlus's Q4 performance might seem lackluster at first glance, the company is playing a long game. Its strategic investments in AI, particularly through AI Ignite, position it to capture a significant share of the emerging AI market. As customers move from exploration to implementation, and as ePlus leverages its land-and-expand strategy, the company has the potential to unlock a level of growth that could surprise even the most seasoned analysts.

"Fun Fact: ePlus was founded in 1990 as MLC Holdings, Inc. before changing its name to ePlus inc. in 1999. This reflects the company's constant evolution and its ability to adapt to the ever-changing technology landscape, a key trait that will serve it well in the AI era."