C3.ai AI is gearing up to unveil its financial performance for the first quarter of fiscal 2025 on Sep 4.
Anticipation surrounds AI’s revenue projections of $84-$89 million for the fiscal first quarter. The Zacks Consensus Estimate predicts revenues at $87.12 billion, signaling a robust 42% surge compared to the year-ago quarter figures.
Analysts expect a quarterly loss of 13 cents per share, a figure unchanged in the last month. In the corresponding quarter of the previous year, AI reported a loss of 9 cents per share.
C3.ai has consistently outperformed the Zacks Consensus Estimate in the past four quarters, boasting an average earnings surprise of 49.18%.
Let’s delve into the current scenario surrounding AI shares ahead of this pivotal earnings announcement.
C3.ai, Inc. Price and EPS Surprise
C3.ai, Inc. price-eps-surprise | C3.ai, Inc. Quote
Factors Impacting AI
AI’s performance in the first quarter is projected to benefit from C3 Generative AI solutions and heightened demand for its Enterprise AI software.
The company’s strategic efforts to expand its customer base across various industries such as manufacturing, federal, defense, aerospace, and pharmaceuticals are anticipated to foster significant revenue growth. Noteworthy traction in the federal space stands out as a key driver.
Nonetheless, the ongoing shift towards a pay-as-you-go consumption model may have led to shorter-term, smaller transactions, potentially impacting revenue performance obligations despite a revenue uptick.
The company foresees a near-term gross margin squeeze attributed to an increased proportion of pilots, which are cost-intensive to acquire during the initial customer lifecycle phase. This might hamper profitability in the upcoming quarter.
Furthermore, augmented investments in sales force, research and development, as well as marketing expenditure are likely to have weighed on the operating margin.
AI Shares Underperforming the Sector
Year-to-date, AI shares have experienced an 18.7% decline, falling short of the broader Zacks Computer & Technology sector’s 20.9% growth and the Zacks IT Services industry’s 5.3% appreciation.
Year-to-Date Performance
Image Source: Zacks Investment Research
Presently, AI stock appears overvalued with a Value Score of F. Trading at a premium, the stock holds a forward 12-month Price/Sales (P/S) of 7.04X, surpassing the sector’s 6.27X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
AI stock is currently below its 50-day and 200-day moving averages, signaling a bearish trend.
AI Shares Trade Below 50-Day & 200-Day SMA
Image Source: Zacks Investment Research
Long-Term Prospects for C3.ai
The expansion of C3.ai’s clientele and the increasing adoption of its Enterprise AI software reflect promising developments for investors.
Notably, C3 Generative AI finds applications in manufacturing, industrial, and military sectors, enhancing safety standards, analyzing technical data, and financial information.
The company’s robust portfolio has seen growing acceptance of its AI solutions. Noteworthy agreements in fiscal 2024 include the selection of C3.ai’s AI-powered predictive maintenance solutions by industry majors like Dow, Holcim, and Con Edison.
Besides innovation and product prowess, C3.ai has capitalized on strong sales channels through strategic collaborations with tech behemoths like Booz Allen Hamilton, Microsoft, Amazon, and Alphabet.
Initiatives aimed at deepening ties with these cloud partners have been paying off, with the attainment of AWS Generative AI competency and the deployment of C3 Generative AI for Government Programs on Alphabet’s Google Cloud, bolstering AI’s presence in the federal arena.
In fiscal 2024, Federal revenues doubled year over year, with AI sealing 65 Federal agreements, marking a 48% annual rise.
Final Thoughts
C3.ai’s aggressive investment stance to capture market share is likely to exert margin pressures in the short run. Despite strong demand for C3 Generative AI solutions and an expanding partner network, this could weigh on AI stock performance in the near future.
Currently holding a Zacks Rank #3 (Hold), it might be prudent to await a more favorable entry point for investing in the stock.