Amidst the hype of AI-centric companies, C3.ai (AI) has drawn attention with its enterprise AI software despite doubts over its actual substance compared to traditional enterprise software. C3.ai’s stock performance has been underwhelming, shedding 54% over the past three years. Despite beating revenue and earnings expectations for the fiscal first quarter, below-par subscription revenue and a less-than-ideal fiscal second quarter outlook have negatively affected the stock, prompting the question – “Can the stock change its course of direction?”
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The company’s customer concentration risk and its reliance on the rising tide of the AI industry could potentially lead to a rude awakening in case of a downturn.
Despite the challenges mentioned, the company’s flexible AI solutions, new customer-focused pricing, important partnerships, and wide use in industries like defense, oil and gas, and government are reasons for optimism that the company can change direction and drive the stock upward. C3.ai is an intriguing investment prospect, though investors may want to see another quarter of positive results to gain greater confidence in the company’s direction.
C3.ai’s Strategic Partnerships Driving Growth
C3.ai is an international enterprise AI software provider offering various products and services across numerous industries. Its offerings include the C3 AI platform, an environment for developing and deploying enterprise AI applications, and the C3 AI CRM Suite, a specialized customer relationship management solution. Additional applications range from systems for inventory optimization to energy management.
The company’s strategic partnerships with notable entities such as Google Cloud (GOOGL), AWS, Microsoft Azure (MSFT), and Baker Hughes (BKR) have been integral to its growth, contributing 72% of the total new client agreements in the most recent quarter. Key alliances such as Google Cloud have seen a 300% year-over-year increase in joint contracts.
C3.ai has also seen a significant overall increase in agreements and pilots, with an expanded footprint across multiple State and Local Government agencies. New contracts were secured with high-profile entities spanning various industries, including the U.S. Department of Defense and multinational corporations such as Dolce & Gabbana.
Several of these partnerships have already yielded significant benefits, such as improving grid resilience with Eletrobras, digitally transforming the U.S. Marine Corps legacy software systems, and boosting manufacturing outcomes with Nucor Corporation (NUE).
3.ai’s Recent Financial Results & Outlook
The company recently reported favorable Q1 FY2025 results. Revenue of $87.2 million surpassed analysts’ estimates by $0.26 million, marking a 21% year-over-year increase. The company’s subscription revenue, which constitutes 84% of total revenue, also saw a notable rise, marking a 20% year-over-year increase to $73.5 million. C3.ai registered a non-GAAP gross profit of $60.9 million, driving a 70% non-GAAP gross margin. The non-GAAP earnings per share were -$0.05, outperforming expectations by $0.08.
For the second quarter of fiscal 2025, management expects total revenue to be $88.6 million to $93.6 million, with non-GAAP loss from operations estimated to be between -$26.7 million and -$34.7 million. For the full fiscal year 2025, management is projecting total revenue of between $370.0 million and $395.0 million and non-GAAP loss from operations between -$95.0 million and -$125.0 million.
What Is the Price Target for AI Stock?
The stock has been on an extended downtrend, losing 75% of its value over the past five years. It trades at the low end of its 52-week price range of $18.85 – $38.30 and demonstrates negative price momentum by trading below its 20-day (23.14) and 50-day (24.78) moving averages. Despite the price drop, with an Enterprise Value to Revenues of 6.58, it seems reasonably priced compared to the Application Software industry’s average EV to Revenues of 6.8.
Analysts covering the company have taken a cautiously optimistic stance on AI stock. For example, Wedbush analyst Daniel Ives recently reiterated an Outperform rating on the shares while lowering the price target from $40 to $30, noting the company delivered top-and-bottom-line beats for Q1.
C3.ai is rated a Hold overall, based on 13 analysts’ recently issued recommendations and price targets. The average price target for AI stock is $26.45, representing a potential upside of 15.00% from current levels.
Final Analysis on C3.ai
Despite the wave of enthusiasm for all things AI-related, C3.ai has been navigating a challenging market landscape. However, the company’s recent financial results, expansion across various sectors, and robust partnerships with tech giants like Google Cloud and Microsoft Azure highlight its growth potential. With C3.ai’s value closely tied to the volatile AI industry and concentrated customer base, investors might want confirmation of consistent positive outcomes before increasing their investment confidence.
