C3.ai Stabilizes Revenue, But Cash Burn and IPD Slump Weigh on Outlook

C3.ai, Inc. (AI) is showing signs of recovery under a new CEO, but unresolved issues from recent quarters continue to cast a shadow over its financial performance. The enterprise AI software company recently reported FQ2'26 revenues of $75 million, slightly exceeding expectations and rebounding from the prior quarter's $70 million. Despite this positive development, the company's financials remain marred by a steep revenue drop from nearly $109 million in FQ4'25. This decline highlights ongoing challenges with subscription and license revenue, which remain below previous levels.

The company reported subscription revenue of $48.3 million in the October quarter, a slight improvement from the prior quarter's $42.4 million. However, professional services revenue plummeted to just $4.9 million, raising concerns about the company's ability to generate recurring income outside of software licenses. License revenue for demonstration versions of AI applications also remains far below the $33.8 million levels seen in FQ4'25, with current figures at $21.9 million.

C3.ai is also struggling with its IPD (initial production development) contracts, a key performance indicator for enterprise AI adoption. The company signed just 20 total IPDs in FQ2'26, with only 6 in generative AI, the lowest figures since the start of pilot programs in FQ1'24. This decline suggests a slowdown in client adoption and deployment of its AI solutions, which could hinder long-term growth.

What This Means for Investors

C3.ai's financial outlook remains highly uncertain, with the company guiding for FQ3'26 revenues of approximately $76 million. This guidance aligns with the previous quarter's performance but still falls short of the $100 million levels seen earlier in the year. The company also warned of a projected FY26 loss of nearly $200 million, raising concerns about its ability to maintain cash reserves while burning $80 million from operations.

Despite these challenges, C3.ai's stock trades at a valuation of just $2 billion, with a market cap of $1.3 billion when accounting for its $675 million cash balance. This low valuation has some investors eyeing the stock as a potential bargain, especially if the company can regain momentum under its new leadership. However, the risks remain high, with continued financial underperformance or unexpected setbacks likely to send the stock to new lows.

Risks to the Outlook

The biggest risks facing C3.ai include its ongoing cash burn and the unresolved issues that contributed to the recent revenue drop. The company has already burned $80 million in cash from operations, and with professional services revenue expected to rebound only modestly, cash flow remains a major concern. If C3.ai fails to improve its financial performance, it could face intense pressure from investors and stakeholders, potentially forcing drastic cost-cutting or restructuring measures.

Additionally, the company's IPD slowdown raises questions about the market's appetite for its AI solutions. With competitors like Google and Amazon investing heavily in AI and generative technologies, C3.ai must prove that its offerings remain relevant and competitive. Any further decline in client interest or adoption could push the company further into the red, making it even harder to meet its financial targets.

How Markets Reacted

C3.ai's stock has been volatile in recent months, with a mix of positive and negative news affecting investor sentiment. The company's shares hit a price of $14.37 after a recent earnings report that slightly exceeded expectations, with revenue reaching $75.1 million and an EPS of -$0.25. This performance helped the stock rise 4.42% in a single day. However, the long-term outlook remains clouded by the company's unresolved financial challenges and declining client adoption rates.

Chairman Thomas Siebel's recent sale of 532,832 shares for $7.6 million has also raised eyebrows among investors. This move, executed under a prearranged trading plan, could be seen as a sign of reduced confidence in the company's near-term prospects. While not necessarily a bearish signal, it underscores the uncertainty surrounding C3.ai's future.

What Analysts Are Watching

Analysts and investors are closely monitoring several key indicators to gauge C3.ai's recovery potential. These include the company's ability to stabilize its IPD pipeline, improve professional services revenue, and reduce its cash burn rate. A rebound in these areas would signal that the new CEO is making meaningful progress. Conversely, a continued decline in client adoption or financial performance could force C3.ai into a more defensive strategy, potentially limiting long-term growth opportunities.

Subscription and license revenue growth will also be crucial in determining the company's trajectory. While these figures have rebounded slightly in the October quarter, they remain well below previous levels. A return to consistent growth in these areas would provide much-needed confidence in the company's core business model and help reassure investors that C3.ai is on the right path.