C3.ai shares rise after beating sales targets and missing earnings News ad

C3.ai Inc. New York Stock Exchange: AI The company’s shares responded to the first round of selling and rose about 3% in mid-day trading on heavy trading volume. This comes a day after the company reported earnings for the second quarter of fiscal 2025. Shares of C3.ai fell about 10% in premarket trading as investors reacted to the company’s quarterly report.

C3.ai today

$38.36 -3.37 (-8.08%)

(As of 12:53 pm ET)

52 week range

$18.85

▼

$45.08

Target price

$35.55

The report’s key figures exceeded expectations. The company reported revenue of $94 million, beating expectations of $91 million. This represents a 29% year-over-year increase in revenue growth and 22% year-over-year growth in subscription revenue. This was the seventh consecutive quarter of increased revenue growth. The company also raised its revenue guidance for the coming quarter and full fiscal year.

On the earnings front, C3.ai reported a smaller-than-expected earnings per share (EPS) loss of six cents. Analysts had forecast a loss of 14 cents per share. However, the question that worries many investors is the company’s path to profitability. As we move closer to 2025, investors seem willing to accept that valuations will increase. Barring some kind of black swan event, the situation is unlikely to change.

But it’s one thing for tech stocks to trade at premium valuations when the companies are generating growing, profitable earnings. That’s not the case with C3.ai, and with the path to profitability pushed back by at least 12 months, it’s fair to wonder if this is the right place to park your capital.

Many companies know they need an AI presence. It’s becoming similar to what the Internet was in the late 1990s and early 2000s. However, many of these same companies lack the resources to create their own large language models (LLMs) needed to train an artificial intelligence system.

This is where C3.ai comes to the rescue. It provides companies with out-of-the-box, customizable AI applications for enterprise-grade clients. This approach allows the company to occupy a unique niche in the artificial intelligence market.

Demand is strong thanks to the 58 new agreements the company added during the quarter. However, much of that growth may have already been priced into the share price, which has risen more than 78% since the company announced it was expanding its partnership with Microsoft Corporation NASDAQ: MSFT September 30. Under the terms of this partnership, C3.ai is the preferred provider of applications on the Microsoft Azure platform. The company will also create a joint go-to-market system based on Azure sales channels.

C3.ai currently generates a significant portion of its revenue from government contracts. This is not surprising. Wars of the future will increasingly be won using software and drones.

However, federal, defense and aerospace contracts amount to approximately 33% of the company’s business. That’s down from 49% in the same quarter in 2023, but it still means C3.ai is heavily exposed to cyclical business and will likely come under scrutiny from the incoming Trump administration.

Government contracts are more expensive to obtain and typically have a long sales cycle, which can negatively impact profitability. Thus, the company should continue to diversify into the public sector, but this may result in lower profitability.

If you are not currently involved in trading C3.ai shares, please be aware that trading may be volatile. AI stock’s post-earnings price action suggests a short squeeze. There is currently short interest in the stock more than 17% in circulation. This means the stock could rise in the short term. This also means that the stock price can reverse as suddenly as it rises.

Since the report was published analyst forecasts tracked by MarketBeat show mostly bullish sentiment. JMP Securities was the most bullish, maintaining an “outperform” rating on the stock while raising its price target to $55 from $40. However, the current consensus price target remains at $33.10, representing a decline of over 23%.

But it’s important to note that many of the company’s current agreements are pilot programs. It will be several quarters before investors know how many of these contracts will result in sustainable revenue and push the company toward profitable earnings. That’s where sustainable stock price growth will come from.