C3.ai Earnings Spark 4.4% Rally as AI Growth Outpaces Profit Concerns

C3.ai (AI) delivered mixed results in its latest quarterly earnings, surpassing expectations in some areas while falling short in others. The firm reported earnings per share (EPS) of -$0.25, outperforming the forecasted -$0.33. Revenue hit $75.1 million, slightly above the projected $74.93 million according to the report. Despite the mixed results, the stock rose 4.42% to $14.37 following the release as reported.

Subscription revenue growth was a standout, rising 16.5% quarter-over-quarter. Strategic partnerships with Microsoft and AWS played a significant role, contributing to 89% of bookings through the partner ecosystem. However, the firm reported a non-GAAP operating loss of $42.2 million, which raised concerns about profitability. The company maintains a strong cash position of $675 million, which may provide some cushion amid the losses.

Investor reactions were varied, with several analysts maintaining or adjusting their price targets. DA Davidson kept its "Sell" rating with a price target of $13, while Citizens upgraded its stance to "Buy" with a $24 price target according to analyst reports. UBS and Morgan Stanley maintained their "Hold" and "Sell" ratings, respectively, with price targets of $17 and $11. These divergent opinions reflect uncertainty about C3.ai's ability to sustain growth and profitability in the near term.

What Analysts Are Watching

The focus for analysts remains on C3.ai's ability to scale its enterprise AI offerings without compromising financial stability. The company's CEO, Stephen Ehikian, emphasized that enterprise AI is moving from experimentation to full-scale deployment, a shift that could fuel long-term growth. However, the firm must also navigate challenges, including competitive pressure and economic uncertainties.

Revenue guidance for Q3 2026 was set at $72–80 million, with full-year revenue projected between $289.5–309.5 million. These figures suggest cautious optimism, but analysts will be closely watching how the firm executes against these targets. For now, most forecasts remain neutral, with a few optimistic voices like WestPark Capital and Wedbush projecting price targets as high as $40 and $35, respectively.

Risks to the Outlook

C3.ai faces several headwinds that could weigh on its performance in the coming quarters. One key risk is the firm's operating loss, which stands at $42.2 million despite revenue growth. High expenses, particularly in research and development, remain a concern. Additionally, the company's gross margin of 54% raises questions about its ability to convert revenue into profit, especially as competition intensifies in the AI space.

Another potential challenge is the volatility in investor sentiment. With several firms maintaining "Sell" and "Hold" ratings, market confidence remains mixed. The recent downgrade from DA Davidson and the lack of strong upside from most analysts highlight the cautious stance many investors are taking. C3.ai will need to demonstrate not only revenue growth but also a path to profitability to win back investor trust.

What This Means for Investors

Investors should evaluate C3.ai as a speculative play rather than a core holding in the near term. The firm's strong cash position and focus on enterprise AI provide upside potential, especially if it can capitalize on strategic partnerships with major cloud providers like Microsoft and AWS. However, the high expenses and mixed guidance suggest that patience will be required.

For long-term investors, the key question is whether C3.ai can scale its offerings without sacrificing financial discipline. If the firm continues to invest heavily in R&D without a clear path to profitability, it may struggle to attract broader market support. On the other hand, successful execution of its enterprise AI strategy could position C3.ai as a key player in the industry.