C3.ai (NYSE:AI) stock initially collapsed 15% Thursday morning before paring some of its losses at the close, even though the company’s first-quarter fiscal 2025 results beat Wall Street’s expectations. Furthermore, C3.ai delivered substantial revenue growth and narrowed its per-share net earnings loss.
Yet, while C3.ai’s results looked good at first glance, the market focused on one aspect of the company’s Q1-FY2025 report. In particular, C3.ai’s subscription revenue grew but still fell short of analysts’ consensus estimate.
It’s also possible that investors hoped to see the company achieve profitability, which didn’t happen. Furthermore, investors may punish C3.ai as they question whether the hype of artificial intelligence (AI) is overblown.
Investors demand proof of profitability
As the AI hype of last year starts to cool down this year, stock traders wonder whether AI-focused businesses like C3.ai can prove their viability. They want to see C3.ai turn a profit, and apparently, they’re not willing to wait a few more quarters for this to happen.
As it turns out, C3.ai didn’t turn a profit in fiscal 2025’s first quarter, but the company got pretty close. Specifically, C3.ai reported an earnings loss of $0.05 per share, which isn’t a deep per-share loss if the share price is approximately $20.
Furthermore, C3.ai’s $0.05-per-share loss is better than the company’s $0.09-per-share loss in the year-earlier quarter. In addition, this result beat the analysts’ consensus estimate of a $0.13-per-share loss for C3.ai.
Thus, even while the market demanded immediate proof of profitability and C3.ai didn’t exactly deliver this, the company’s progress is notable and commendable. Perhaps the market overreacted in dumping C3.ai stock, and there may be a dip-buying opportunity for risk-tolerant investors seeking AI-technology portfolio exposure.
C3.ai shows solid sales progress, but it’s not enough
Another possible reason for the share-price sell-off is that C3.ai’s Q1-FY2025 revenue in its Subscription segment didn’t live up to Wall Street’s expectations. However, one might wonder whether analysts just expected too much of C3.ai in this area.
C3.ai’s Subscription segment revenue grew 20% year over year to $73.5 million, and this certainly looks like good progress at first glance. Yet, analysts anticipated that C3.ai would generate $79.2 million in Subscription segment revenue.
In other words, 20% growth just wasn’t good enough for Wall Street. In my opinion, this says more about the experts’ overblown expectations than it says about the company’s actual results. But again, people are nervous about AI and want immediate, compelling proof that it’s not just a bubble that’s about to burst.
Instead of obsessing and worrying, I encourage investors to stay calm and focus on the big picture. In Q1 of FY2025, C3.ai’s total revenue grew 21% year over year to $87.2 million. That’s a respectable result, and it beat Wall Street’s consensus call for $86.9 million in quarterly revenue.
I don’t expect C3.ai’s sales to falter anytime soon. In its quarterly report, the company emphasized not only its multitude of private-sector contracts, but also C3.ai’s contracts with various county-level governments as well as with the U.S. Marine Corps (USMC).
Stay rational when the market is irrational
When it comes to generating consistent revenue, a company can’t do much better than having multiple government-level clients. Overall, C3.ai truly is a power player in the enterprise AI software space, but short-term stock traders are too busy worrying about AI hype to see the big picture.
Amid this confusing scenario, one can simply stick to the facts and tune out the noise and the irrational fear. C3.ai’s Subscription segment revenue grew, the company beat Wall Street’s total sales and EPS estimates and make progress toward profitability.
Consequently, if you’re in the market for an AI-tech investment and don’t mind buying what other people are selling, the reward-to-risk profile for C3.ai stock is as favorable as it’s been in quite a while.
