There’s no question 2023 was the year of artificial intelligence. It drove not only the headlines but also the bottom lines of many companies. One of the big beneficiaries of AI’s breakthrough moment was C3.ai (NYSE:AI), a leading provider of enterprise AI applications. It’s stock is up 140% over the past year.

The question for investors is can C3.ai keep the momentum going in 2024 and beyond. We know AI itself has strong tailwinds behind it for the next few years, but will they translate into greater growth for AI stock?

AI Stock Has a Strong Tailwind

The increasing popularity of AI stems from its transformative potential in enhancing operational efficiency, data-driven decision-making, and innovation. It has the potential to drive corporate profits higher over the next decade and beyond.

C3.ai has strategically positioned itself to capitalize on this trend, catering to diverse industries like energy, defense, manufacturing, healthcare, and finance. And just as there is a surge in demand for AI applications across, C3.ai could be at the forefront.

First, its strategic partnerships and contracts with major players in the tech and industrial sectors give it a boost. Collaborations with industry giants such as Microsoft (NASDAQ:MSFT) and Alphabet’s (NASDAQ:GOOG)(NASDAQ:GOOGL) Google not only validate the robustness of C3.ai’s technology but also open doors to broader market access and potential integration with existing ecosystems. 

Other noteworthy partnerships include those with energy giant Shell (NYSE:SHEL), defense contractor RTX (NYSE:RTX) (formerly Raytheon), and the U.S. Air Force. These solidify the company’s credibility and emphasize its relevance in critical sectors.

Moreover, C3.ai is transitioning to a consumption-based pricing model from a subscription-based one. While subscriptions boast recurring revenue streams for companies, the consumption-based model lowers costs and allows for greater personalization for customers.

It’s a strategic move that gives C3.ai the chance to better align itself with the evolving needs of clients and positions its platform as an attractive option in an increasingly competitive AI software marketplace.

The Easy Part Is Done

While C3.ai demonstrates considerable growth potential, it faces several roadblocks that could impede its trajectory. The business model change is helping revenue grow, up 14% year-to-date to $145 million, but losses are widening too.

Operating losses grew to $290 million last year from $60 million two years prior, and they’re already up to $153 million over the first six months of the current fiscal year.

Despite its innovative solutions and strategic partnerships, achieving profitability in the competitive AI landscape might be challenging.

High research and development costs, customer acquisition expenses, and the need for continuous innovation place a strain on the company’s financials. To sustain long-term growth, C3.ai must carefully balance its investments with revenue generation.

That could prove difficult if a recession hits and companies rein in spending. While the promise of AI is great, businesses still need to see real-world results. An economic downturn could see them pullback spending on unproven technologies. And with C3.ai counting on businesses consuming growing amounts of product that could hit topline results.

The intense competitive landscape itself poses a formidable hurdle. Several tech giants and nimble startups are vying for dominance in this space, creating a crowded and competitive market.

C3.ai faces the task of differentiating itself from competitors, proving the superiority of its solutions, and continually innovating to stay ahead. The rapid advancements in AI technology also mean it needs to stay at the forefront of innovation to remain relevant.

Start Small

So far C3.ai has navigated the minefield of risk fairly well. The launch of ChatGPT thrust it into the forefront in late 2022, and the company capitalized on the newfound interest in the field. Because it’s still early innings in the space, today’s leader could be tomorrow’s has-been and vice versa. 

The meteoric rise of AI stock suggests a lot of its potential has already been priced in. I wouldn’t sell my shares at these levels, but I wouldn’t be a big buyer either.

If you’ve already established a stake hold onto it. If you’re new to C3.ai, then buy just a small tranche and add to it if shares fall. AI is going to make millionaires out of investors, but it’s much too early to say who will become the real winners.

On the date of publication, Rich Duprey held a LONG position in RTX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.