It’s safe to say investors didn’t like the latest set of earnings from C3.ai (NYSE:AI), with the stock tumbling ~9% over the next two sessions, deepening its year-to-date loss to 27%. This negative response came despite the AI-focused software company surpassing both revenue and earnings expectations for the fiscal first quarter (July).
Specifically, C3.ai reported revenue of $87.2 million, amounting to a 20.5% year-over-year increase and just edging ahead of the Street’s call by $0.26 million. At the other end of the equation, adj. EPS came in at -$0.05, $0.08 above the analysts’ expectations.
Despite these positive headline figures, subscription revenue reached $73.5 million, representing 20% growth from the $61.4 million reported a year earlier but falling short of the Street’s $79.1 million forecast. Adding to the negative sentiment was the outlook. For the fiscal second quarter, revenue is expected to range between $88.6 million and $93.6 million, with the midpoint falling below the consensus estimate of $91.3 million. Additionally, C3.ai forecasts an adjusted operating loss of $26.7 million to $34.7 million, with the midpoint coming in worse than the Street’s expected $26.7 million loss.
Assessing the print, JMP analyst Patrick Walravens concedes that the company “continues to face a number of risks” including its reliance on Baker Hughes, which accounts for about 33% of FY25 revenue, with the current contract set to expire in April 2025.
However, Walravens says there are several reasons why he continues to like the story. For one, C3.ai provides enterprise AI solutions that “drive customer success” across a wide range of industries and use cases, while it operates in an industry with a huge TAM (total addressable market). Secondly, the company has shifted to a pilot and consumption-based pricing model, aligning its economics with “industry practices and customer success.” Additionally, demand for C3.ai’s offerings remains strong, with an especially high uptake in sectors like federal and defense, oil and gas, and state and local government. Lastly, having successfully led Siebel Systems to a $5.8 billion acquisition by Oracle in 2006, Walravens believes CEO Thomas M. Siebel’s extensive experience in the software industry remains a big plus.
So, down to business, what does this all mean for investors? Walravens rates AI shares an Outperform (i.e., Buy) along with a Street-high $40 price target, implying the stock will gain ~92% in the year ahead. (To watch Walravens’ track record, click here)
That’s a bull’s take but in general the Street is more cautious; based on a mix of 5 Holds, 4 Buys and 2 Sells, the consensus view is that AI stock is a Hold (i.e. Neutral). Still, the average price target stands at $28.11, and factors in 12-month returns of ~35%. (See AI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
