C3.ai Stock: Could AI Shares Fall Below $15 After Earnings?

Shares of C3.ai (AI), an enterprise artificial intelligence (AI) application software company, are under pressure after its fiscal first-quarter earnings release. The stock has dropped more than 32% over the past six months, and the post-earnings reaction was sharp, with shares tumbling over 20% in premarket trading. This sell-off occurred despite C3.ai surpassing analysts' expectations on key financial metrics.

Although C3.ai stock has already lost substantial value, at least one Wall Street analyst maintains a firmly bearish outlook, projecting the stock could fall to $15 per share within the next 12 months—a price target that's currently the lowest on the Street.

C3.ai’s Challenges

In its first quarter of fiscal year 2025, C3.ai exceeded expectations across key financial metrics, including top and bottom lines. Its revenue of $87.2 million increased 21% year-over-year and came in slightly ahead of the Street’s forecast. Further, it managed to reduce losses, with the adjusted loss per share dropping to $0.05 from $0.09 in the prior year. That was narrower than the Street’s forecast for a per-share loss of $0.13.

However, despite these positive results, there are growing concerns about the company’s ability to accelerate its growth. 

A key area of concern is the slowdown in subscription revenue growth, which increased 20% year-over-year to $73.46 million, compared to a 41% jump in the prior quarter. This deceleration has raised red flags, particularly in the context of tightening corporate budgets for IT and software amid broader economic uncertainty.

Compounding investor worries, C3.ai’s forward guidance didn’t provide much reassurance. While Q2 revenue projections between $88.6 million and $93.6 million were in line with the consensus estimate of $91 million, the full-year forecast for fiscal 2025 fell short. The company expects revenue between $370 million and $395 million, with the midpoint below Wall Street’s consensus of $383.4 million.

C3.ai continues to emphasize its long-term growth potential in AI, but the company’s optimistic outlook hasn’t yet translated into consistent, scalable revenue. Sequential deceleration in subscription revenue highlights challenges in expanding its customer base and converting pilot programs into long-term contracts. This friction raises concerns about C3.ai’s ability to accelerate growth amid rising competition and cautious enterprise spending.

Additionally, the company expects short-term pressure on gross margins due to the higher cost of pilot programs. Further, investments to scale the business will also weigh on C3.ai's operating margins in the near term.

Bright Spots for C3.ai    

Despite these challenges, it’s not all gloom and doom for the company. C3.ai’s first quarter marked the sixth consecutive quarter of accelerating revenue growth, signaling the growing adoption of its enterprise AI offerings.

Further, C3.ai closed 71 agreements in the first quarter, up 122% year-over-year. This included 52 pilots, which grew 117% year-over-year.

Additionally, C3.ai made significant strides in expanding its footprint across the public sector, signing 25 agreements with the state and local government. The company’s federal business is doing well, with the segment representing over 30% of its bookings. Moreover, it entered into a new and expanded deal with the U.S. military.

The segment continues to contribute significantly to C3.ai’s growth rate. Moreover, the launch of C3 Generative AI for government programs presents another promising avenue for growth.

C3.ai’s customer base continues to expand within and across industries while maintaining exceptional customer satisfaction. This is a positive, and could accelerate its revenue growth rate in the future.

Furthermore, C3.ai remains well-capitalized, with $762.5 million in cash on hand. The company also has minimal concerns over collections, reinforcing the overall health of its receivables.

The Bottom Line on C3.ai Stock

While C3.ai faces headwinds in maintaining its growth trajectory and converting pilot programs into recurring revenue, the company continues to expand its footprint across various sectors. Its solid financial health and growing government and enterprise partnerships suggest that C3.ai has significant long-term potential.

However, near-term pressure on margins and slowing subscription growth warrant caution, as a drop to that Street-low target of $15 per share remains a possibility if these challenges persist.

Reflecting these concerns, Wall Street analysts have taken a more cautious stance on the stock, with a consensus rating of "Hold." The current average price target is $29.33, though this figure may be adjusted downward as analysts update their forecasts following the company's Q1 earnings report.

In summary, while C3.ai offers promising long-term opportunities, investors must exercise caution in the near term before making any decisions.