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

On Monday, C3.AI Inc reported impressive results for its second quarter, showcasing a revenue of $93.34 million. This figure surpassed analysts' expectations, which had projected revenue at $91.02 million. Additionally, the company recorded a narrower earnings per share (EPS) loss of 6 cents, better than the anticipated loss of 16 cents.

Following the earnings report, several analysts reassessed the stock's outlook, with some increasing their price targets significantly.

Key Insights: C3.ai recently celebrated its seventh consecutive quarter of growing revenue.

Analyst Aaron Kimson from JMP Securities maintained a "Market Outperform" rating on C3.ai and raised the price target from $40 to $55. Meanwhile, Needham's Mike Cikos reiterated a "Hold" rating, and JP Morgan's Pinjalim Bora kept a "Neutral" rating, adjusting the price target upward from $19 to $28.

JMP Securities Comments: While there are ongoing concerns regarding C3.ai's reliance on Baker Hughes—accounting for about 20% of the company's revenue in fiscal 2025—Kimson remains optimistic about C3.ai's trajectory. This optimism stems from the company's continuous revenue growth and its extensive range of AI solutions across various industries, such as manufacturing, defense, government, and oil and gas. Furthermore, the company has recently secured a new patent related to agentic AI, which bolsters its competitive edge further.

A significant highlight is C3.ai's new six-year partnership with Microsoft Corp, which designates C3.ai as a preferred AI application partner on Microsoft's Azure platform. This partnership provides a streamlined contracting process for Microsoft customers looking to purchase C3.ai applications.

C3.ai aims to reduce its revenue dependency on Baker Hughes, which has seen its contribution to the company’s revenue decreasing from 35% in fiscal 2023 to an estimate of 18% in fiscal Q2 of 2025.

Looking ahead, the company anticipates a surge in demand from federal and defense sectors, responding to shifts under the new government administration. CEO Tom Siebel has highlighted a considerable shift in focus towards AI applications and cybersecurity.

With a seasoned background in software, CEO Thomas M. Siebel successfully led his previous venture, Siebel Systems, to a lucrative sale to Oracle Corp in 2006 for $5.8 billion, showcasing his expertise in navigating the tech landscape.

C3.ai's stock currently reflects a calendar 2025 Enterprise Value to revenue multiple of 10.7 and a calendar 2026 multiple of 8.6. Analysts suggest that the revised price target denotes a 10.8 times ratio for calendar 2026 revenue, aligning with the median of similar companies and taking into account C3.ai's rapid growth and specialized AI capabilities. Kimson estimates a revenue of $99.0 million with an EPS loss of $(0.26) for the upcoming third quarter.

Needham Commentary: According to Needham, C3.ai’s recent quarter results exceeded their high-end revenue expectations while operating losses were narrower than projected. The most significant highlight was the partnership with Microsoft, which greatly broadens C3.ai's market opportunities.

However, C3.ai forecasted fiscal 2025 operating losses to moderate at approximately $120.0 million, which is $10 million wider than earlier estimates to accommodate the partnership's launch. Consequently, the company has decided that positive free cash flow is unfeasible for fiscal 2025.

While recognizing an uptick in Revenue Per Order (RPO) for the first time since fiscal Q1 2024, the company suggests further improvement is essential as it embarks on pilot programs. Simultaneously, there is some concern regarding elevated churn rates for existing pilot programs.

JP Morgan's analyst Bora recently updated his AI projections to incorporate the fiscal results from the second quarter. He highlighted that the new targets indicate a roughly 7 times Enterprise Value to 2026 revenue, compared to around 5 times for the next fiscal year. Despite anticipated growth levels being comparable with its peers, Bora noted that C3.ai operates at a significantly smaller scale than similarly positioned companies.

Analysts predict C3.ai will correspondingly generate about $98.0 million in revenue for the third quarter, with an EPS loss projected at $(0.26).

Price Movement: Following the positive second-quarter earnings results, C3.ai's stock jumped 7.87%, reaching a last trading price of $44.89.

C3.ai, Growth, Microsoft