C3.ai's Growth Boosted by Microsoft Partnership And AI Expansion Drive, Analysts Up Price Forecast

On Monday, C3.AI Inc AI reported second-quarter revenue of $93.34 million, beating analyst consensus of $91.02 million. The company reported a quarterly EPS loss of 6 cents, beating analyst loss estimates of 16 cents.

Analysts rerated the stock after the print, with some raising their price targets.

Related Read: C3.ai Stock Rallies After Q2 Results, ‘Seventh Consecutive Quarter Of Accelerating Revenue Growth’

JMP Securities analyst Aaron Kimson maintained C3.ai with a Market Outperform rating and raised the price target from $40 to $55.

Needham analyst Mike Cikos reiterated C3.ai with a Hold rating. JP Morgan analyst Pinjalim Bora maintained a Neutral rating on C3.ai with a price target of $28, up from $19.

JMP Securities: While C3.ai continues to face several risks, including its dependency on Baker Hughes, which has represented about 20% of fiscal 2025 revenue and whose current contract expires in June 2025, overall, Kimson continues to like this story for several reasons. The company has now had seven quarters of accelerating revenue growth. It offers a broad range of AI applications for enterprises in fields like manufacturing, defense, government, and oil and gas and has deep AI domain expertise, as reflected in part by a new patent, which covers agentic AI and strengthens the company’s market position dramatically.

C3.ai announced a broad new six-year partnership with Microsoft Corp that establishes “C3.ai as a preferred AI application partner on Azure” and allows Microsoft customers to buy C3.ai applications through the Azure Portal and “on Microsoft Paper,” which should make contracting much, much easier for C3.ai.

The company is reducing its revenue dependency on Baker Hughes, which was 35% of C3.ai’s revenue in fiscal 2023, 27% in fiscal 2024, 22% in fiscal first-quarter of 2025 and 18% in fiscal second-quarter of 2025.

The company is expecting to see increased demand in areas like federal and defense following the new government administration, with founder and CEO Tom Siebel noting that there has been a shift in interest from “submarines and carriers and space, and aircraft” to the “AI applications, AI applications, AI applications, AI applications, and then cyber.”

Founder and CEO Thomas M. Siebel has deep experience in the software industry and navigated his prior company, Siebel Systems, to a good outcome in its sale to Oracle Corp in 2006 for $5.8 billion.

At the closing price, C3.ai trades at a calendar 2025 Enterprise Value to revenue multiple of 10.7 times and a calendar 2026 Enterprise Value to revenue multiple of 8.6 times, while the new price target implies a calendar 2026 Enterprise Value to revenue multiple of 10.8 times (previously calendar 2025 10.0 times), in line with the peer group median that he noted is merited by C3.ai’s rapid growth, domain-specific AI capabilities, and potential strategic value. Kimson projected a third-quarter revenue of $99.0 million and an EPS loss of $(0.26).

Needham: C3.ai’s second-quarter results exceeded the high end of revenue guidance, with a narrower operating loss than expected as certain expenses pushed to the second half of fiscal 2025.

The main talking point from management was the Microsoft partnership announced in late September, which meaningfully expands the company’s addressable opportunity. C3.ai guided fiscal 2025 operating losses to $120.0 million at the midpoint (-31% operating margin), – $10 million wider than management’s previous outlook to support the initiative. C3.ai will invest in customer success, go-to-market, and research and development.

Management no longer expects to generate positive free cash flow for fiscal 2025. RPO increased for the first time since the first quarter of fiscal 2024 but needs to be more meaningful with the transition to the pilot program. Meanwhile, incremental churned pilots remain elevated as the active pilot count moderates. Cikos projected a third-quarter revenue of $98.1 million and an EPS loss of $(0.25).

JP Morgan: Bora updated his AI model to include fiscal results for the second quarter of 2025. The price target reflects ~7 times Enterprise Value to calendar 2026 revenue (previously ~5 times Enterprise Value to calendar 2025) relative to infrastructure software companies growing forward twelve months (FTM) revenue over 20% (Cloudflare, Inc, CrowdStrike Holdings, Inc, Datadog, Inc, Snowflake Inc, GitLab Inc, Zscaler, Inc, CyberArk Software Ltd, SentinelOne, Inc) trading at ~10 times Enterprise Value to calendar 2026 revenue.

The analyst noted AI should trade at a significant discount to this group because its growth is similar but at a much smaller scale for AI, and AI is extremely unprofitable compared to the comps.

While AI is expected to grow FTM revenue at a comparable growth level (25% versus 24% for comps median), AI is 80% smaller than the median scale of the comp group. Additionally, AI is expected to have (10%) FTM free cash flow margin driving a growth plus margin profile of 14%, versus comps at +23% unlevered free cash flow margin driving a growth plus margin of +46%. Furthermore, the calendar 2025 proforma operating margin for AI is expected to be (30%) versus comps at +15%.

Bora projected a third-quarter revenue of $98.0 million and an EPS loss of $(0.26).

Price Action: AI stock is up 7.87% at $44.89 at last check Tuesday.

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