Investors continue to shun AI plays as C3.ai slides 20% after posting results

Investors were eagerly anticipating C3.ai's earnings as a key indicator of broader sentiment toward AI stocks. Early reactions suggest that sentiment remains negative, with the stock plunging 20% in after-hours trading, dropping below the $20 mark. While the results themselves were solid, they lacked the spark needed to ignite enthusiasm, prompting further profit-taking in the AI sector.

C3.ai (AI) reported its fiscal Q1 2025 results, with total revenue rising 21% year-over-year to $87.2 million, in line with analyst expectations. Subscription revenue, which accounted for 84% of total revenue, grew by 20% year-over-year to $73.5 million, slightly below the estimate of $79.1 million. Professional services revenue, however, beat expectations, rising 25% year-over-year to $13.8 million. Despite the top-line growth, shares fell 14% after the release, largely due to investor concerns over guidance and profitability metrics.

For Q2, C3.ai provided revenue guidance in the range of $88.6 to $93.6 million, in line with expectations. The company reaffirmed its full-year FY25 revenue guidance of $370 to $395 million, ahead of consensus estimates of $383.4 million. It also projected a narrower operating loss for FY25, guiding for a range of $95 million to $125 million, a significant improvement from the $318.3 million loss in FY24. However, the market reacted negatively to the stock due to concerns over subscription revenue growth and the company’s ability to meet its long-term targets.

Key drivers behind C3.ai's Q1 performance included strong momentum in sectors like manufacturing and state and local government. The company closed 71 agreements during the quarter, a 122% increase year-over-year, with 52 of those being pilot programs. C3.ai's expansion in state and local government agencies was particularly notable, with 25 agreements across several states, including Texas, California, and New Jersey. Federal business remained strong, representing over 30% of the company’s bookings for Q1.

Despite the company’s solid performance, profitability remains a concern. While C3.ai reported a positive free cash flow of $7.1 million, the company's GAAP gross profit margin was 60%, and its non-GAAP gross margin was 70%. The company also posted a non-GAAP net loss of $0.05 per share, narrower than expected, but investors remain cautious about future profitability due to the ongoing high costs of customer acquisition and scaling its operations.

Looking ahead, C3.ai continues to focus on expanding its market presence and driving growth through partnerships with both private companies and government agencies. However, while the company’s long-term potential in AI-driven enterprise applications remains attractive, concerns over its ability to manage costs and achieve sustainable profitability will continue to weigh on investor sentiment in the near term.