C3.ai Stock Tumbles Despite Strong AI Demand: Analysts Weigh In

C3.ai Hits 'Bump In The Road': 5 Analysts Weigh Strong AI Demand Against Margin Pressures, Subscription Weakness - C3.ai (NYSE:AI)

Multiple analysts maintain Neutral ratings, weighing near-term concerns against longer-term growth prospects. Although C3.Ai Inc AI shares are falling following the company's first-quarter financial results, analysts largely remain positive on the longer-term story, fueled by a continued rise in AI-related demand. Wedbush analyst Dan Ives maintained C3.ai with an Outperform rating Thursday morning and lowered the price target from $40 to $30. Oppenheimer analyst Timothy Horan maintained an Outperform rating on the stock following earnings. KeyBanc analyst Eric Heath believes the stock is fairly valued at around $19 per share. Piper Sandler analyst Arvind Ramnani maintained a Neutral rating on C3.ai and lowered the price target from $29 to $24 DA Davidson analyst Gil Luria maintains a Neutral rating and slashed the price target from $30 to $20. See Also: Nvidia Takes A Page From Apple's Playbook: Jensen Huang Wants AI Stalwart To Go Beyond Chips And Be One-Stop Shop For Data Center Clients Wedbush: In a new note to clients, Ives explained that the company's better-than-expected revenue and earnings numbers are being overlooked due to a change in how software and services revenue is reported, which is going to impact subscription and services growth moving forward. Looking ahead, C3.ai expects to generate negative free cash flow in the coming quarters, but anticipates positive free cash flow for the full year as it focuses on cash management, the Wedbush analyst said. "While this was a slight bump in the road, we remain positive on C3.ai going into 2025 with a strong pipeline across industries coupled with solid top-line growth while seeing solid bottom-line expansion as the AI Revolution gains more momentum over the next few years," Ives said. Oppenheimer: Similar to Wedbush, Horan noted that quarterly results are likely to remain volatile, but he believes the "very strong demand" the company is seeing will help carry shares higher. The Oppenheimer analyst anticipates 30% revenue growth this year and close to 40% revenue growth by the end of next year, citing the company's unique AI applications and skills, paired with minimal competition. KeyBanc: Heath further highlighted the AI story driving C3.ai, but raised concerns about the company's ability to broaden its offerings. "While we believe C3 AI may see increased demand for its AI/ML services given the high priority of generative AI in the enterprise, we have concerns about the Company's ability to broaden beyond vertical-specific AI applications and any technological differentiation in horizontal adjacencies, as well as on low model visibility given the shift to a consumption revenue model," Heath said. The KeyBanc analyst highlighted the company's weak subscription revenues, but noted that services revenue meaningfully beat expectations. Heath doesn't have a price objective for C3.ai. Following the print, he maintained his full-year 2025 estimates, but lowered revenue expectations for 2026. Piper Sandler: Ramnani expects margins to face continued pressure as the company focuses on growth. C3.ai's first-quarter results were driven by broad-based growth and a focus on expense management, but subscription revenues came in light, Ramnani said. The analyst noted that interest in C3.ai's products continues to trend well given that the company closed 71 agreements in the quarter. However, he expects margins to face pressure as the company continues to lean into growing pilots. DA Davidson On AI: Luria came away with many of the same takeaways as the aforementioned analysts. He highlighted continued demand, but noted that the selloff is likely due to weaker-than-expected subscription revenues. After updating estimates to reflect guidance from management, Luria determined that shares fully reflect current growth prospects for the company. "C3.ai continues to convey a large opportunity ahead of it and is focused on growing total revenue," the DA Davidson analyst said. AI Price Action: C3.ai shares fell more than 20% after reporting earnings after the close on Wednesday. The stock is bouncing back a bit Thursday morning and was last down 12.3% at $20.18, per Benzinga Pro. Read Next: 'Tofu-Like' Psychedelic Gets FDA Nod - Mindstate's AI-Designed Therapy To Begin Human Trials Photo: Shutterstock. Market News and Data brought to you by Benzinga APIs

C3.ai (AI) Stock: Unwarranted Reaction

Looking for more investing ideas like this one? Get them exclusively at Out Fox The Street. Learn More " AI software companies already have wild reactions to earnings reports, and C3.ai, Inc. (NYSE:AI) didn't help their case with guidance slightly below targets. The AI software company is actually reporting accelerating growth and the fastest growth rates since switching the business model to consumption-based, but the stock market isn't happy. My investment thesis is back to ultra-Bullish on the stock following the negative reaction to earnings. C3.ai just reported an FQ1 '25 quarter where revenue growth returned to 21%, yet the market doesn't appear satisfied. The enterprise AI software company is starting to see the benefits of focusing on small pilot deals for a consumption model as follows: The company beat analyst targets by a small $0.3 million, but C3.ai only guided to $86.5 million. The company did beat internal estimates by a solid margin. Ultimately, the focus should still be on new agreements with C3.ai signing 71 agreements for 122% growth in FQ1 with 51 pilots for similar growth. The key generative AI pilot deals bounced back to 17 with the company reporting the following quarterly pilot numbers: C3.ai saw a far bigger sequential boost for non-gen. AI deals due to working with Google Cloud on government contracts. Either way, the enterprise AI company continues to add far more customers into the pilot program, with 90 apps allowing customers to quickly tailor data to an AI module working with large language models ("LLMs") from all the major players. Ultimately, the successful pilot deals will take up to 10 quarters to fully produce peak-type revenues from a prior subscription deal. As management discusses, the gen AI pilots run around 3 months at a cost of $250K, and the enterprise AI deals last 6 months at a cost of $500K with an expected conversion rate into a contract of ~70%. For this reason, growth continues to ramp up, but revenue growth isn't matching the 100% growth rate of new agreements and pilot deals. While revenue growth is improving, the company has just about wiped out the large cash burn rates with the larger revenue base. In FQ1, C3.ai produced 70% non-GAAP gross margins and cut the operating loss to $16.6 million. The company reported positive cash flows and forecasts positive free cash for the fiscal year. The stock fell nearly 17% in after-hours trading to $19 after guidance slightly trailed Wall St. consensus estimates. C3.ai guided to FQ2 revenues of $91.1 million at the midpoint, ever so slightly below the $91.3 million consensus estimates. The company kept full-year sales guidance at $370 to $395 million, leading to the view of mid-point guidance of $382.5 million, falling below the $383.9 million analyst estimate. Again, C3.ai has a strong history of beating targets, suggesting the company ends up topping these estimates when actually reporting yearly numbers. The market is nitpicking these numbers as being bad. The guidance of FQ2 actually amounts to 24% growth YoY, topping the 21% in the just reported July quarter. C3.ai is now actually reporting the fastest growth since the FQ1 '23 quarter, when the company shifted from the subscription model to the consumption-based pricing model. Ironically, the stock traded at the same price before slashing estimates for FQ2 '23 where quarterly revenue guidance was targeted at $61 million, yet now the enterprise AI software company is forecasting ~50% growth during this period to $91 million in quarterly sales. The company even maintains $762.5 million in cash and the market cap has slipped to ~$2.5 billion, or an EV of only $1.7 billion. As discussed in prior research, an enterprise software company with the C3.ai type growth will usually trade in the range of 5x to 8x forward EV/S targets. The market will start looking toward the FY26 revenue target of $467 million while the cash balance should remain around the current level of $763 million, leading to the following price targets: The key investor takeaway is that now is the time to pounce on C3.ai. The stock has traded at a premium valuation for most of the last year or so, and now investors are running away from the equity when growth has returned to prior levels. Investors should use the weakness to load up on C3.ai stock below $20 with the large pilot pipeline signaling growth will remain strong for a long time.