How Should Investors Approach C3.ai Shares Post Q2 Earnings?

C3.ai AI reported a second-quarter fiscal 2025 adjusted loss of 6 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 16 cents. The company reported a non-GAAP loss of 13 cents in the year-ago quarter.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Revenues of $94.34 million increased 29% year over year, beating the Zacks Consensus Estimate by 3.66%. The company witnessed strong traction in its enterprise AI applications, particularly for C3 Generative AI.

In the reported quarter, C3.ai closed 58 agreements, with 36 of those agreements involving pilot projects. This represents a notable increase in demand for its Enterprise AI and Generative AI offerings.

C3.ai, Inc. Price, Consensus and EPS Surprise

C3.ai, Inc. price-consensus-eps-surprise-chart | C3.ai, Inc. Quote

AI raised its fiscal third quarter and fiscal 2025 guidance following the robust fiscal second-quarter performance, which bodes well for investors. C3.ai shares have appreciated 45.2% year to date, outperforming the Zacks Computer & Technology sector’s return of 33%.

AI Quarter Details

C3.ai’s subscription revenues (86% of revenues) increased 22.1% year over year to $81.2 million. Professional service revenues (14% of revenues) surged 94.3% year over year to $13.2 million.

In the reported quarter, the non-GAAP gross margin was 70% compared with 69% reported in the year-ago quarter.

Research and development and general and administrative expenses increased 10.5% and 7.7% on a year-over-year basis to $55.7 million and $21.8 million, respectively. Sales and marketing expenses increased 11.5% year over year to $55.6 million.

In the fiscal second quarter, C3.ai reported a non-GAAP loss from operations of $17.2 million compared with $25 million reported in the year-ago quarter.

AI Benefits From Expanding Clientele

C3.ai has been one of the prominent AI stocks in recent times thanks to strong demand for C3 Generative AI solutions and an expanding partner base that includes the three big cloud providers Amazon AMZN, Alphabet GOOGL and Microsoft MSFT.

Partnerships with hyperscalers like Google Cloud, Amazon Web Services (AWS), and Microsoft Azure have driven 62% of the company’s agreements in the second quarter of fiscal 2025. This indicates that C3.ai’s partner network is critical in driving revenue and adopting its solutions.

In the reported quarter, C3.ai, in collaboration with Google Cloud, closed 20 agreements, marking a 180% year-over-year increase. It was featured at Google’s Public Sector Summit in Washington, DC, while jointly hosting six executive roundtable discussions across North America and LATAM.

C3.ai is also benefiting from its expanding partnership with Microsoft. It leverages Microsoft’s Azure platform to enhance its AI offerings and reach a broader customer base across sectors.

In the second quarter of fiscal 2025, C3.ai also saw expanded contracts with major clients such as Exxon Mobil, Shell, Rolls-Royce, Coca-Cola, and the U.S. Department of Defense. These expansions showcase a growing adoption of AI-driven solutions at a large scale, particularly in industries like energy, manufacturing, and government.

AI Balance Sheet

As of Oct. 31, 2024, C3.ai had total cash, cash equivalents and marketable securities of $730.4 million compared with $762.5 million as of July 31 2024.

Cash outflow from operations was $30.6 million against the previous quarter’s cashflow of $8.04 million.

AI Initiates Strong FY25 Guidance

For third-quarter fiscal 2025, C3.ai expects revenues between $95.5 million and $100.5 million. Non-GAAP loss from operations is anticipated to be in the range of $38.6 million-$46.6 million.

For fiscal 2025, C3.ai expects revenues between $378 million and $398 million. Non-GAAP loss from operations is expected to be in the range of $105 million-$135 million.

What Should Investors Do With AI Stock?

We point out that C3.ai stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.

However, C3.ai’s strong demand for C3 Generative AI solutions and an expanding partner base are driving continuous top-line growth and enhancing its growth prospects.

Hence, investors who already own the stock might expect the company’s growth prospects to be rewarding over a longer term.

AI stock currently carries a Zacks Rank #2 (Buy) and has a Growth Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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