C3.ai just released their Q4 2024 earnings transcript, and while the initial reaction has been positive, I believe there's a critical detail hidden within the text that most analysts are overlooking. This overlooked insight reveals a potentially explosive growth trajectory for C3.ai that could leave Wall Street scrambling to catch up.

The key lies in Tom Siebel's discussion of C3.ai's transition to a consumption-based pricing model. He notes that while the initial assumption was for pilots to convert primarily to month-to-month consumption agreements, the reality has been surprisingly different. A significant majority of customers are opting instead for multi-year subscription contracts. This is counterintuitive, especially in a market where flexibility and agility are highly valued. So, why are customers bucking the trend and committing to long-term agreements?

The answer lies in the scale of deployments. Customers, after experiencing the value proposition of C3.ai's solutions during the pilot phase, aren't just satisfied with a single application in a single department. They are recognizing the potential for enterprise-wide transformation and are eager to deploy multiple C3.ai applications across various business units. This shift in mindset signifies a crucial tipping point. Customers are moving beyond mere experimentation with AI and are embracing it as a core driver of their operations.

The implication for C3.ai is profound. These multi-year subscription contracts provide a level of revenue predictability and stability that was absent in the earlier consumption-only model. While Siebel emphasizes the revenue neutrality of both approaches over the long term, the short-term impact is likely to be significantly positive.

Consider this: the average TCV for C3.ai has drastically decreased since the pricing model transition. In Q4 2024, the average TCV was $900,000, a far cry from the $16 million average seen in fiscal year 2019. This smaller initial transaction size, combined with a high conversion rate and an increasing preference for multi-year subscriptions, creates a powerful engine for accelerating revenue growth.

Here's a potential scenario: let's assume C3.ai maintains a conservative pilot conversion rate of 70%, and of those conversions, 60% opt for multi-year subscriptions. With an average TCV of $900,000, a three-year subscription agreement would translate to roughly $2.7 million in committed revenue. This creates a robust foundation for growth that can be further amplified as customers expand their deployments over time.

Moreover, the fact that customers are choosing multi-year commitments signals strong confidence in C3.ai's ability to deliver sustained value. This, coupled with the company's significant investments in generative AI and its Version 8 platform, paints a picture of a company poised for explosive growth.

C3.ai's Bookings Distribution in Q4 2024

The following table shows the diversification of C3.ai's bookings across various industries in Q4 2024, indicating growing adoption beyond its traditional strongholds.

There's another interesting element to consider. The transcript reveals a staggering 50,000 inquiries received by C3.ai for its generative AI solutions in Q4 alone. This overwhelming interest reflects the massive market opportunity for C3.ai's highly differentiated generative AI products. The company's focus on security, determinism, and traceability resonates with enterprise customers wary of the risks associated with traditional large language models.

Projected Growth in Generative AI Inquiries

The following chart illustrates the potential surge in inquiries for C3.ai's Generative AI solutions, highlighting the company's aggressive growth trajectory in this burgeoning market.

The surge in inquiries, coupled with the company's plans to invest aggressively in sales and service capacity, suggests a potential acceleration in pilot deployments. This could lead to a virtuous cycle of increased conversions, subscriptions, and ultimately, a dramatic surge in revenue.

Here's the hypothesis: If C3.ai can effectively manage the influx of inquiries and translate them into successful pilot deployments, the company's revenue growth could significantly exceed current market expectations. The combination of a high conversion rate, a preference for multi-year subscriptions, and a massive addressable market for generative AI creates a powerful recipe for outsized returns.

Wall Street seems fixated on RPO as a leading indicator, but with the dynamic nature of C3.ai's evolving business model, RPO might no longer be the reliable metric it once was. The company's focus on smaller, shorter-term transactions, combined with the growth of consumption-based agreements, makes RPO a less relevant indicator in the short term.

The real story lies in the company's execution. If C3.ai can successfully convert its pilot deployments into long-term, multi-application subscriptions, the company's future trajectory could be nothing short of remarkable. This is a company built on a foundation of deep expertise in Enterprise AI, with a first-mover advantage and a strong technology platform. The current market frenzy around AI, coupled with the rise of generative AI, is a tailwind that could propel C3.ai to new heights.

C3.ai, a company founded in 2009 by tech veteran Tom Siebel, the same visionary behind the legendary Siebel Systems, has a history of defying expectations and building industry-leading companies. With a bold vision and a relentless focus on execution, C3.ai might just be the hidden gem that redefines the future of Enterprise AI.

"Fun Fact: C3.ai's Version 8 platform, a result of four years of intensive engineering, boasts a 20-fold improvement in speed and efficiency. This translates to faster data ingestion, quicker training of machine learning models, and the ability to run thousands of applications in a single cluster, demonstrating C3.ai's commitment to delivering cutting-edge technology."