Shares of C3.ai (AI 2.85%) are currently down 6.4% since the company's latest earnings report on Monday, Dec. 9. The artificial intelligence (AI) software company posted another strong quarter of growth, with revenue up 29% year over year.

Despite the stock's recent performance, JMP Securities analyst Aaron Kimson still sees great upside potential over the next year or so. Following the quarterly update, the analyst raised the firm's price target from $40 to $55, implying 41% upside over the current share price of $39.

Why buy this top AI stock

C3.ai has reported seven consecutive quarters of accelerating growth, which indicates the market for generative AI applications is still heating up.

The recent strategic partnership with Microsoft's cloud services business certainly bolsters C3.ai's growth prospects. This deal makes the company's products available through Azure's global sales force and significantly expands the number of C3.ai sellers from hundreds to potentially 10,000 sales professionals.

One reason for the stock's recent performance is the pending expiration of the company's agreement with Baker Hughes, which expires June 30, 2025. The energy technology company represented 18% of C3.ai's revenue last quarter, but revenue excluding Baker Hughes grew 41% year over year in the quarter, which shows diminishing concentration risk.

Analysts currently expect C3.ai to post revenue growth of 25% in the current fiscal 2025 and 22% in fiscal 2026. For the stock to reach $55, it will need to either significantly exceed those estimates, or investors will have to increase the stock's price-to-sales (P/S) valuation, which is already sitting at a high P/S multiple of 14.

Overall, I would expect the stock to continue climbing proportionately with the company's underlying revenue growth, but it could take a few years for C3.ai stock to hit the analyst's price target. Regardless of how the stock performs next year, the shares could deliver spectacular gains over the long term based on the impressive deals C3.ai continues to make with large organizations like Microsoft.