C3.ai AI shares have returned 12.4% in the past month, outperforming the broader Zacks Computer and Technology sector's appreciation of 4.6% and the Zacks Computers - IT Services industry's return of 5.8%.
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.
Expanding relationships with these cloud providers bode well for C3.ai's prospects. In the first quarter of fiscal 2025, C3.ai closed 51 agreements through its partner network, up a whopping 155% year over year and 82% sequentially.
AI closed 71 agreements in the reported quarter including new agreements with GSK, Eletrobras, Valero, Swift, SmithRx, Sanofi, the U.S. Intelligence Community, the U.S. Department of Defense, Dolce & Gabbana, Ingersoll Rand, and others.
AI has been taking initiatives to expand its relationship with these cloud partners. It has now achieved AWS Generative AI competency, further deepening its relationship with Amazon.
The Amazon Web Services ("AWS") Competency Program helps customers by connecting them with AWS Partners like C3.ai, which possesses extensive knowledge and technical expertise in using AWS technologies and best practices to adopt generative AI (Gen AI).
The launch of C3 Generative AI for Government Programs, an advanced AI application that runs on Alphabet's Google Cloud is noteworthy. The application is designed to help federal, state, and local governments efficiently deliver accurate information to the public about various government programs.
The latest solution is expected to strengthen AI's footprint in the federal space. In the fiscal first quarter, the federal business accounted for more than 30% of AI's bookings. C3.ai entered into new and expansion agreements with the United States Air Force, the U.S. Navy, the U.S. Marine Corps, and the U.S. Intelligence Community, among others in the reported quarter.
In the first quarter of fiscal 2025, C3.ai inked 25 deals with municipal, county and state agencies in Texas, California, New Jersey, Georgia, Washington and Connecticut, Virginia, Rhode Island, Maine, New Mexico and Florida.
C3.ai's Prospects Ride on Strong Portfolio
C3.ai's expanding clientele and growing adoption of its Enterprise AI software are notable developments for investors.
C3 Generative AI is currently being used by manufacturing, industrial, and military industries. It improves safety standards on production floors and equipment operations and analyzes technical information, contracts and financial data.
However, AI continues to expect near-term pressure on gross margin due to a higher mix of pilots, which are much costlier to acquire at the initial phase of the customer lifecycle.
Additional investments in sales force, research and development, and marketing spending are expected to hurt operating margin. It plans to expand sales capacity across North America, Europe, and in the public sector.
Although it expects negative free cash flow for the fiscal second quarter and fiscal third quarter, AI still expects positive free cash flow for the fourth quarter of fiscal 2025 and fiscal 2025.
AI Offers Solid Top-Line Growth Guidance
For fiscal 2025, AI still expects revenues between $370 million and $395 million, which implies year-over-year growth between 19% and 27%.
Non-GAAP loss from operations is still expected between $95 million and $125 million for fiscal 2025.
For the second quarter of fiscal 2025, C3.ai expects revenues between $88.6 million and $93.6 million. Non-GAAP loss from operations is expected between $26.7 million and $34.7 million.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $383.44 million, indicating 28% growth year over year. The consensus mark for loss is pegged at 53 cents per share, which has narrowed by a penny over the past 30 days.
The Zacks Consensus Estimate for second-quarter fiscal 2025 revenues is currently pegged at $91.01 million, indicating growth of 24.28% over the figure reported in the year-ago quarter.
AI shares are overvalued, as suggested by the Value Score of F.
AI stock is trading at a premium with a forward 12-month Price/Sales of 7.82X compared with the broader sector's 6.1X.
C3.ai's plan to invest aggressively to gain market share is expected to keep margins under pressure in the near term. Despite strong demand for C3 Generative AI solutions and an expanding partner base, this factor is expected to drag down the AI stock in the near term.
C3.ai currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.
Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.
Want the latest recommendations from Zacks Investment Research? Today, you can download 5 Stocks Set to Double. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.