C3.ai drifts lower around higher expenses, CEO share sale plan

C3.ai (AI) delivered strong Q3 fiscal 2025 results, outperforming expectations on both EPS and revenue. The company reported an adjusted loss of $0.06 per share, significantly better than the consensus estimate of a $0.16 loss. Revenue came in at $94.3 million, surpassing the $91 million consensus and marking 29% year-over-year growth, an acceleration from the 21% growth recorded in Q1. The company's subscription revenue rose 22% year-over-year, reflecting sustained demand for its enterprise AI solutions.

C3.ai provided optimistic guidance for Q4, projecting revenue between $95.5 million and $100.5 million, with a midpoint of $98.5 million, slightly above analyst expectations of $97.5 million. For fiscal year 2025, the company raised its revenue forecast to a range of $378 million to $398 million, above the $382.57 million consensus. The guidance signals confidence in ongoing growth, supported by the ramp-up of AI pilot projects into commercial production.

Price action around the earnings release was volatile. Shares initially jumped over 10% in after-hours trading, driven by the strong results and guidance, but retreated by 7% in premarket trading the following day. The dip was attributed to disclosures in the company’s 10-Q that CEO Thomas Siebel plans to sell stock, which tempered investor enthusiasm despite the strong financial performance.

A significant highlight of the quarter was the announcement of an expanded partnership with Microsoft (MSFT). Under this agreement, C3.ai's solutions will be marketed by Microsoft's Azure salesforce, with commissions offered for successful sales. Additionally, Microsoft will subsidize C3.ai pilot projects through March 2030. This partnership positions C3.ai as a preferred AI application provider on Azure, creating a large-scale go-to-market engine and accelerating enterprise AI adoption.

Despite the strong quarterly performance, the company continues to face risks, including its dependency on Baker Hughes, which represents about 20% of its revenue and whose contract expires in mid-2025. However, analysts remain optimistic about C3.ai's ability to reduce this concentration risk as it diversifies its customer base and revenue streams. The transition to consumption-based pricing models is expected to drive sustainable growth.

C3.ai’s free cash flow for the quarter was negative at ($39.5 million), well below the consensus of ($14.6 million). While this reflects higher investments to capitalize on growth opportunities, it also underscores the company’s need to improve cash efficiency as it scales. Analysts will watch closely for improvements in free cash flow metrics in subsequent quarters.

The company’s strong presence in key industries, such as manufacturing, financial services, and defense, combined with its portfolio of over 40 enterprise AI applications, positions it well in the competitive AI software market. The accelerating revenue growth and partnerships with major players like Microsoft are viewed as pivotal in maintaining its growth trajectory.

Overall, C3.ai’s Q3 results were a strong validation of its growth strategy, particularly in the face of macroeconomic uncertainties. The improved outlook and enhanced partnership with Microsoft signal positive momentum for the company, although the stock’s volatility underscores the market’s cautious optimism about its long-term prospects.