C3.ai (AI), a leading provider of enterprise artificial intelligence (AI) software, saw its stock jump over 43% in the past month on the news of a joint venture with ECS (ASGN), an IT systems integrator, to modernize information collection for the U.S. Army’s intelligence systems. This collaboration will deploy the C3 AI Decision Advantage application to integrate and optimize data collection, increasing efficiency and readiness. Additionally, C3 AI has signed a strategic alliance agreement with Microsoft (MSFT), marking a significant milestone in accelerating enterprise AI growth.
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Furthermore, in the second quarter of Fiscal 2025, C3 AI beat top-and-bottom-line expectations, with the company’s bottom-line performance marking the seventh consecutive quarter of revenue growth acceleration. The company anticipates ongoing growth, raising its full-year Fiscal 2025. While the stock is relatively richly valued, its upside potential makes it a GARP candidate for investors interested in participating in the growing application of AI.
The Army Turns to AI to Solve Its Catch-22s
C3.ai is an enterprise AI application software company offering a comprehensive family of products, including the C3 AI Platform, a holistic solution for developing, deploying, and operating enterprise-level AI applications. Additionally, C3’s AI Applications provide a range of industry-specific SaaS enterprise AI solutions and domain-specific generative AI services tailored to a business’s unique needs.
To modernize information collection management processes for Army Intelligence, C3.ai has been tapped to fulfill a task order for the U.S. Army’s Program Manager for Intelligence Systems & Analytics (PM IS&A). The partnership entails the deployment of C3 AI Decision Advantage, integrating the application suite for Combined Joint All-Domain Command & Control (CJADC2), digitizing collection management workflows, and considerably reducing soldier collection requirements management and collection orchestration operations.
Additional Agreements with Microsoft and Local Governments
Additionally, C3.ai has signed a new global alliance agreement with Microsoft, making C3’s solutions available on the Azure Price List, orderable on the Azure Marketplace, and sellable by the entire Azure sales organization globally. Moreover, Microsoft will subsidize C3.ai’s pilots and production deployments for the duration of the agreement (through 2030).
The company has reported recently closing 58 agreements – including 36 pilots, expanding its footprint across state and local governments, including contracts with the U.S. Department of Defense (DoD), U.S. Air Force, U.S. Navy, U.S. Army, U.S. Marine Corps, and Defense Logistics Agency, among others. On the technological front, C3.ai has also strengthened its stand in Generative AI, closing 15 pilots, converting multiple pilots to production, and launching the C3 Generative AI Accelerator Program.
Revenue Is Growing, But So Are Losses
The company recently reported fiscal second-quarter 2025 financial highlights that included revenue of $94.3 million, surpassing analysts’ projections by $3.28 million. This represents a 29% increase from the previous year’s Q2 and the company’s seventh consecutive quarter of accelerating revenue growth. The subscription revenue generated $81.2 million, or 86% of the total, showing a 22% rise compared to the $66.4 million reported a year earlier. When combined with prioritized engineering services revenue, this figure constituted 96% of total revenue, an increase of 27% relative to $71.3 million from a year ago.
As for profit, the GAAP gross profit for the quarter amounted to $57.8 million, translating to a 61% gross margin. The non-GAAP gross profit was higher at $66.3 million, equating to a 70% non-GAAP gross margin. The GAAP net loss per share was -$0.52, while the non-GAAP net loss per share came to -$0.06, beating consensus expectations by $0.10.
As of the quarter’s end, the company’s cash balance, cash equivalents, and marketable securities totaled a robust $730.4 million.
Management has offered its guidance for the third quarter and the full year of Fiscal 2025, anticipating total revenue ranging from $95.5 million to $100.5 million in Q3 and $378.0 million to $398.0 million for the year. However, the company expects a non-GAAP loss from operations ranging from $38.6 million to $46.6 million in Q3, which will escalate to $105.0 million to $135.0 million by the end of 2025.
Mixed Opinions on AI Stock
C3’s stock has been highly volatile (beta of 3.46), ranging from $18.85 – $45.08 over the past year. It is currently at the top of the range, posting a 50% gain over that time, and shows ongoing positive price momentum as it trades above all major moving averages. It does appear richly valued with a P/S ratio of 14.9x compared to the Information Technology sector average of 3.3x.
Analysts following the company have had mixed opinions on AI stock. Recently, analysts from Northland, DA Davidson, and JMP Securities have all increased their price targets on the shares to $45, $40, and $55, respectively. Meanwhile, JP Morgan (JPM) had downgraded the company to a Sell rating with a price target of $28.
Based on nine analysts’ recent recommendations, C3.ai is rated a Hold overall. The average price target over the next 12 months for AI stock is $38.25, representing a potential small upside of 0.18%.
Closing Thoughts on C3.ai
C3.ai is making significant strides. The stock has seen a notable surge following news of a joint venture with ECS to modernize information collection for the U.S. Army’s intelligence systems and a strategic partnership with Microsoft to accelerate AI growth. The company reported its seventh consecutive quarter of revenue growth acceleration in Q2 of Fiscal 2025, increasing optimism about its future despite escalating losses. Although the stock carries a rich valuation, it is a GARP candidate with substantial upside potential, making it an intriguing investment opportunity in the burgeoning field of AI.
