C3.ai Bounces in Q2 With $75M Revenue, But Losses and Cash Burn Loom

C3.ai: Financial Recovery and Challenges

C3.ai Financial Performance

C3.ai Inc. (AI) has shown signs of recovery after hitting a trough in the first quarter of 2026, with Q2 revenues rebounding to $75 million. The enterprise AI software company slightly outperformed analyst expectations and reported a 16.5% quarter-over-quarter increase in subscription revenue. This growth was supported by strategic alliances with Microsoft and AWS, which contributed to 89% of bookings through the partner ecosystem.

Despite the positive revenue performance, C3.ai continues to face challenges, including a significant drop in IPD (Initial Production Development) contracts and a decline in generative AI deals.

The company reported only 6 generative AI IPDs in Q2, marking a slowdown from previous quarters. This trend has persisted since Q1, with total IPDs reaching a multi-quarter low.

The company's new CEO, Stephen Ehikian, has highlighted a transition in enterprise AI from experimentation to full-scale deployment, noting that demand for C3.ai's solutions is accelerating. However, the company still projects a massive FY26 loss of nearly $200 million, and its cash burn remains a concern despite ending the quarter with $675 million in cash.

Why the Standoff Happened

C3.ai's financial struggles trace back to a sharp decline in revenues and gross margins, exacerbated by challenges in the professional services segment. In Q2, professional services revenue fell to $4.9 million, accounting for just 6.5% of total sales. This is a stark contrast to the company's historical performance and raises concerns about its ability to generate revenue from this key area.

The company's guidance for Q3 revenue was set at $72–80 million, in line with the previous quarter's $75 million. This forecast reflects cautious optimism, given the ongoing challenges and the need to reduce cash burn. C3.ai is expected to report a non-GAAP gross margin of 54%, but this remains a far cry from the levels seen during its peak performance.

The decline in IPD contracts further compounds the issue. With only 20 total IPDs signed in Q2, the company is struggling to secure new business. This decline is a continuation of a downward trend that began in Q1, with generative AI IPDs dropping to their lowest level since the focus on pilot programs began.

Risks to the Outlook

One of the most pressing risks for C3.ai is its ongoing financial burn rate and the need for immediate improvements. The company has already burned $80 million in cash from operations in FY26, raising concerns about its ability to sustain operations without a significant turnaround. While the $675 million cash balance provides some flexibility, investors are closely watching for signs of a more aggressive cost-cutting strategy. This is particularly concerning given the company's projected losses.

The stock is currently trading at a valuation of $2 billion, which is just over four times its projected FY26 revenue. This low valuation reflects the uncertainty surrounding C3.ai's future and its unresolved operational issues. The stock remains a high-risk investment, with the potential for further volatility if the company fails to deliver on its recovery plans. This situation underscores the investment risk.

Another risk comes from corporate governance concerns. On December 16, 2025, Thomas Siebel, the company's chairman, sold 532,832 shares under a prearranged trading plan, valued at approximately $7.6 million. While this transaction does not necessarily signal a lack of confidence, it could be interpreted as a cautious move by a top insider.

What This Means for Investors

For investors, C3.ai remains a high-risk, high-reward proposition. The company has shown signs of stabilization, with revenues rebounding and a stronger cash position. However, the unresolved issues surrounding IPD deals, professional services, and profitability remain critical challenges. The new CEO's ability to regain momentum and execute on the company's strategic vision will be key to unlocking long-term value.

Investors considering entry into the stock should be prepared for volatility and the possibility of further setbacks. The current valuation offers potential upside if C3.ai can deliver on its AI transformation goals, but the path remains uncertain. With a projected FY26 loss of $200 million, the company will need to demonstrate significant improvements in both revenue and cost management to restore investor confidence.

As the AI industry evolves, C3.ai's ability to adapt and scale its offerings will be crucial. The company has positioned itself as a leader in enterprise AI, but without a clear path to profitability and sustained revenue growth, the road ahead remains challenging.