C3.ai's Growth Accelerated by Microsoft Partnership and AI Expansion, Analysts Adjust Price Targets

On Monday, C3.AI Inc (NYSE:AI) announced that it achieved impressive second-quarter revenue of $93.34 million, surpassing the analyst consensus estimate of $91.02 million. Additionally, the company reported a quarterly earnings per share (EPS) loss of 6 cents, which was better than the anticipated loss of 16 cents.

Following the release of these results, analysts quickly reevaluated the stock, with several increasing their price targets based on C3.ai's performance.

Positive Analysts Ratings

JMP Securities analyst Aaron Kimson reiterated their Market Outperform rating for C3.ai, raising the price target from $40 to $55. Meanwhile, Mike Cikos from Needham maintained a Hold rating on the stock. Pinjalim Bora of JP Morgan retained a Neutral rating while upping the price target from $19 to $28.

Even though C3.ai faces some challenges, including its reliance on Baker Hughes, which accounted for around 20% of fiscal 2025 revenue and has a contract that expires in June 2025, Kimson sees potential in the company's growth story. C3.ai has recorded seven consecutive quarters of accelerating revenue growth and has a wide range of AI applications targeting various industries such as manufacturing, defense, government, and oil and gas. The company’s significant AI expertise is evidenced by its recent patent covering agentic AI, which enhances its competitive standing.

Partnership with Microsoft

C3.ai has formed a major six-year partnership with Microsoft Corp, establishing it as a preferred AI application partner on Azure. This agreement allows Microsoft customers to conveniently purchase C3.ai applications through the Azure Portal, simplifying the contracting process and expanding C3.ai's market reach.

Moreover, C3.ai is actively working to diminish its revenue dependence on Baker Hughes. The contribution from Baker Hughes has been decreasing: it represented 35% of C3.ai’s revenue in fiscal 2023, 27% in fiscal 2024, 22% in the first fiscal quarter of 2025, and is projected to drop to 18% in the second quarter of fiscal 2025.

Future Outlook

The company anticipates a surge in demand from sectors like federal defense, a point emphasized by founder and CEO Tom Siebel. He noted a shift in focus from traditional military assets to AI applications, indicating strong future potential for the technology.

Siebel, with a notable background in the software industry, previously guided his former company, Siebel Systems, to a successful acquisition by Oracle Corp in 2006 for $5.8 billion.

Financial Metrics and Projections

Currently, C3.ai's stock trades at an estimated value of 10.7 times its revenue for calendar 2025 and 8.6 times for calendar 2026. The new price target suggests a multiple of 10.8 times revenue for 2026 – aligning with the peer group median.

Looking ahead, Kimson forecasts third-quarter revenue at $99.0 million with an EPS loss of $(0.26). On the other hand, Needham's report indicates that C3.ai surpassed re-revised revenue expectations for the second quarter, reporting a narrower operating loss due to some expenses being pushed into the second half of fiscal 2025.

Challenges Ahead

Management's emphasis was primarily on the newly announced partnership with Microsoft, which significantly broadens the company's potential market. However, C3.ai has guided for an operating loss of $120.0 million at the midpoint for fiscal 2025, a figure that is wider than earlier projections as the company ramps up investments in customer success, market entry strategies, and research and development initiatives.

C3.ai also anticipates that it may not reach positive free cash flow in fiscal 2025. The backlog of unfilled pilot projects has increased for the first time since the start of fiscal 2024, though the overall number of active pilots is stabilizing.

JP Morgan's Bora has adjusted his AI model in light of the latest fiscal results, noting that the updated price target reflects approximately 7 times the Enterprise Value relative to calendar 2026 revenue. He commented that while C3.ai is expected to grow its revenue at a rate similar to its peers, its market capitalization is much smaller, leading to a larger discount compared to competitors.

Bora projects the third-quarter revenue for C3.ai to be $98.0 million with an EPS loss of $(0.26).

Market Reaction

Following the release of its second-quarter results, C3.ai stock rose significantly, trading up 7.87% to $44.89 during the latest market session.

Conclusion

C3.ai continues to navigate a complex landscape marked by strong growth potential and various challenges. The recent collaboration with Microsoft is expected to play a crucial role in shaping the company’s future trajectory in the AI industry.

C3.ai, Microsoft, Earnings