To The Moon

$C3.ai, Inc.(AI)$ is scheduled to release its fiscal Q3 2025 financial results on 26 Feb 2025 after market close.

Analysts are estimating AI to post revenue of USD 98.12M for its fiscal Q3 2025, up 25.15% year-on-year. The earnings per share is estimated to come in at 25 cents loss which will see it widened by almost 50% year-on-year.

C3.ai (AI) Last Positive Earnings Call Saw AI Share Price Change -35.51%

AI had a positive earnings call on the 09 Dec 2024 but the share price have seen a -35.51% change since.

The earnings call presented a strong outlook with significant revenue growth and strategic partnerships, particularly with Microsoft, which is expected to drive future growth.

However, challenges like operating losses and cash flow concerns were noted, although they were counterbalanced by strategic investments and partnerships.

C3.ai (AI) Guidance Revenue Growth To Continue

During the C3 AI Q2 2025 earnings call, the company provided a strong financial outlook with several key metrics. They reported a total revenue of $94.3 million, marking a 29% year-over-year increase, and exceeding their revenue guidance. Subscription revenue was $81.2 million, a 22% rise from the previous year, while subscription and prioritized engineering services revenue combined reached $90.8 million, accounting for 96% of total revenue. The company's non-GAAP gross profit was stated at $66.3 million, representing a 70% gross margin. Additionally, C3 AI ended the quarter with over $730 million in cash, cash equivalents, and investments.

The company raised its fiscal 2025 revenue guidance to a range of $378 million to $398 million, indicating continued confidence in its growth trajectory, which was notably boosted by a new strategic alliance with Microsoft Azure.

Key Metrics To Watch For AI Fiscal Q3 2025 Earnings

Strong Revenue Growth To Continue

In fiscal Q2 2025, C3 AI reported a year-over-year revenue growth of 29% for the quarter, with total revenue reaching $94.3 million, exceeding the high end of their guidance. Subscription revenue increased by 22% year-over-year. I am expecting this strong revenue growth to continue as AI products availability in Microsoft Azure should bring in a significant revenue contribution.

Microsoft Strategic Alliance To Improve

In fiscal Q2 2025, C3 AI entered into a significant 5.5-year strategic alliance with Microsoft Azure, allowing C3 AI products to be available on Microsoft's Azure price list and marketplace. This partnership is expected to dramatically shorten sales cycles and expand market reach. I believe AI would be improving this partnership as this would shorten the sales cycles and AI could now expand to more markets with minimal cost spending.

Continued Expansion of Partner Ecosystem

The partner ecosystem now includes major players like Google, AWS, Microsoft, and others. 62% of agreements were closed with or through Google Cloud, AWS, and Azure. I am expecting AI to continue the expansion of the partner ecosystem which would see more enterprises adopting AI product and services.

Generative AI Deployment

C3 AI closed 15 new generative AI agreements with major organizations including Boston Scientific and Rolls-Royce, demonstrating significant progress in deploying AI solutions. In Nov 2024, C3 AI and Microsoft forge strategic alliance to accelerate enterprise AI adoption.

Patent Awarded for Agentic AI

C3 AI received a U.S. patent for Agentic AI, which strengthens its market position by protecting key AI technology. This patent for Agentic AI should put C3.ai in the AI race as focus are now shifting to agentic AI.

Here Are Some Of The Revenue and Cash Flow Factors That Might Derail The Earnings

Operating Loss

In fiscal Q2 2025, the non-GAAP operating loss for the quarter was $17.2 million, although this was better than the guidance range. I would think that this might narrow but if it miss, we could see AI share price experience a sharp drop.

Free Cash Flow Negative

Free cash flow for the quarter was negative $39.5 million, though improved from negative $55.1 million in the prior year. This might continue as AI have been spending money to secure partnership but any improvement could help AI share price to experience some rebounce.

AI is no longer targeting to be cash flow positive for the full fiscal year 2025, aiming instead for the fourth quarter of 2025 due to increased investment in growth.

Baker Hughes Revenue Decline

In fiscal Q2 2025, revenue from Baker Hughes continues to decline, accounting for only 18% of total revenue, down from 27% in the previous fiscal year. This might continue as now focus might be revenue contribution from partners.

C3.ai (AI) Price Target

Based on 10 Wall Street analysts offering 12 month price targets for C3ai in the last 3 months. The average price target is $37.22 with a high forecast of $55.00 and a low forecast of $24.00. The average price target represents a 38.47% change from the last price of $26.88.

We have seen decline by more than 5% on Monday (24 Feb) as investors react to last week’s economic data. So we might continue to see decline in the broader tech sector with profit-taking as investors comprehend the impact.

We could be seeing AI hitting close to the lower price target if the downside sentiment continue.

Technical Analysis - Exponential Moving Average (EMA)

If we looked at the technicals with EMA, currently AI is trading below the 200-day period and the RSI is moving into oversold region, this signal a very bearish trend, so what we need from the market would be a signal of AI moving close to the 200-day period at least.

For now, it might be better to hold on to investing into AI until we see what the earnings call tell us about the prospect for AI agentic AI for 2025.

Summary

I would think AI is in a position that its operating loss would be looked at closely because that would give us an idea on how AI revenue from its partner sales and its agentic AI would look like.

As of now, market is displaying bearish sign of a broader tech sector downside.

Appreciate if you could share your thoughts in the comment section whether you think AI narrowing of operating loss would help to boost its share price.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.