C3.ai Reports Strong Q3 Revenue Amidst Profitability Concerns

JP Morgan analyst Pinjalim Bora has maintained an Underweight rating on C3.ai, Inc (AI), setting a price target of $27, down from a previous target of $28.

C3.ai recently announced its third-quarter revenue, totaling $98.8 million, which represents a 26% increase compared to the previous year. This figure exceeded analysts' expectations, which had set the consensus estimate at $98.1 million.

The company recorded an adjusted net loss of 12 cents per share, significantly better than the anticipated loss of 25 cents per share by market consensus.

Looking ahead, C3.ai projects its fourth-quarter revenue to be between $103.6 million and $113.6 million, again outperforming a consensus estimate of $108.6 million.

Bora has updated his AI model incorporating the third quarter's results for fiscal 2025. The new price target reflects approximately 7 times the estimated enterprise value over the calendar 2026 revenue, which remains unchanged. In comparison, similar infrastructure software companies that are experiencing over 20% revenue growth are trading closer to 10 times their estimated enterprise value.

This lower price target is attributed to subpar core growth when adjusted for demo licenses. Bora highlighted that C3.ai should be valued at a significant discount compared to its peers, as its growth is similar yet operates at a considerably smaller scale. Furthermore, C3.ai is seen as severely unprofitable in relation to its competition.

While C3.ai's future twelve-month revenue growth is expected to align closely with competitor averages (23% growth compared to 24%), its size is about 80% smaller than the median of its peer group. Analysts expect C3.ai will achieve a 14% free cash flow margin over the next year, creating a growth-plus-margin profile of just 9%, compared to peers averaging a 22% Unlevered Free Cash Flow (UFCF) margin with a growth-plus-margin of 46%.

In addition, C3.ai’s adjusted operating margin for calendar 2025 is projected at -24%, in contrast to a positive 15% for comparable companies.

Price Action: Currently, AI stock has declined 6.24% to $25.05 based on the latest trading updates.

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C3.ai, Revenue, Profitability