C3.ai's Federal AI Push: Can Army and HHS Contracts Justify a Stock Turnaround?

C3.ai (NYSE: AI) has recently secured high-profile contracts with the U.S. Army and the Department of Health and Human Services (HHS), sparking renewed investor interest in its valuation and growth trajectory. These wins, coupled with a 26% year-over-year revenue increase in Q4 2025, raise the critical question: Do these federal engagements justify a turnaround in the stock, which has fallen over 60% in the past year?

Strategic Value of Federal Contracts

The U.S. Army's Rapid Capabilities and Critical Technologies Office selected C3.ai to develop AI-driven logistics solutions for contested environments, aiming to enhance forecasting for parts, fuel, and munitions. Meanwhile, HHS chose C3.ai's agentic AI platform to unify data across the National Institutes of Health (NIH) and the Centers for Medicare & Medicaid Services (CMS), improving data governance and automating administrative workflows. These contracts underscore C3.ai's ability to deliver secure, large-scale AI systems for sensitive federal missions, a critical differentiator in a market increasingly prioritizing compliance and security according to recent reports.

The strategic implications extend beyond immediate revenue. C3.ai's FedRAMP Moderate authorization, obtained in late 2025, allows its platform to handle sensitive government workloads, opening pathways for broader adoption across agencies. This accreditation aligns with federal mandates pushing agencies toward commercial off-the-shelf AI solutions, positioning C3.ai as a key player in the public sector's digital transformation.

Financial Performance and Guidance

C3.ai reported Q4 2025 revenue of $108.7 million, driven by subscription revenue ($87.3 million) and prioritized engineering services. Federal bookings grew 89% year-over-year in Q2 2026, contributing 45% of total bookings during the period. While the exact value of the Army and HHS contracts remains undisclosed, the company's prior federal engagements-such as a $13 million task order under a $450 million Air Force contract-suggest the potential for multi-year, high-value deals.

For fiscal 2026, C3.ai projected revenue between $447.5 million and $484.5 million, with federal contracts expected to play a pivotal role. The company also renewed strategic alliances with Baker Hughes, Microsoft, and AWS, further solidifying its market reach. These partnerships, combined with a 73% partner-driven agreement rate in FY25, highlight C3.ai's ecosystem-driven growth strategy.

Risks and Market Skepticism

Despite these positives, skepticism persists. The lack of explicit financial terms for the Army and HHS contracts leaves room for uncertainty about their direct revenue impact. Additionally, C3.ai's stock has underperformed despite recent wins, reflecting investor concerns about execution risks and profitability. The company's long-term narrative-forecasting $613.6 million in revenue by 2028-relies on sustained federal adoption and efficient scaling of its AI platforms according to market analysis.

Conclusion: A Cautious Case for Optimism

The Army and HHS contracts, alongside FedRAMP authorization and robust federal bookings, represent a meaningful shift in C3.ai's market positioning. These developments address key weaknesses in its prior business model, such as reliance on commercial clients and limited government traction. However, justifying a stock turnaround requires not only securing more contracts but also demonstrating consistent revenue conversion and profitability. For now, the federal momentum provides a compelling catalyst, but investors should monitor execution against 2026 guidance and the pace of new contract wins.