C3.ai dips after ‘mixed guidance’ despite Q2 beat, analysts largely positive

C3.ai’s (NYSE:AI) stock fell about 5% premarket on Tuesday despite fiscal second quarter results beating estimates and a raised outlook. Meanwhile, analysts had mixed to largely positive views on the company.

JMP Securities said it maintained Market Outperform rating on C3.ai and increased its price target to $55 from $40 after the company announced better-than-expected second quarter fiscal 2025 results with accelerating growth.

Analysts led by Patrick Walravens said the company reported mixed guidance for fiscal third quarter and the year with — the third quarter non-GAAP operating loss range of -$38.6M to -$46.6M, consensus of -$30.5M on revenue of $95.5M to $100.5M, midpoint at $98M (consensus $97.6M); full-year operating loss of -$105M to -$135M, consensus -$108M on revenue of $378M to $398M, midpoint at $388M (consensus $383M), representing growth of around 25% at the midpoint.

The company expects to be free cash flow negative in the fiscal third quarter, consensus -$15M; free cash flow positive in fiscal fourth quarter 2025, implying negative free cash flow in fiscal 2025, but commentary expecting positive free cashflow in fiscal 2026, according to the analysts.

The analysts added that while C3.ai continues to face a number of 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, they continue to like the story for several reasons, including that — the company has now had seven quarters of accelerating revenue growth; and C3.ai offers a range of AI applications for enterprises in fields like manufacturing, defense, government, and oil and gas, and has deep AI domain expertise.

Walravens and his team also like C3.ai because the company announced a broad new six-year partnership with Microsoft 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 easier for the company.

In addition, the analysts said that C3.ai is reducing its revenue dependency on Baker Hughes, which was 35% of the company’s revenue in fiscal 2023, 27% in fiscal 24, 22% in fiscal first quarter 2025 and 18% in fiscal second quarter. The company is also expecting to see increased demand in areas like federal and defense following the new government administration with C3 AI’s Chairman and CEO Thomas 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.”

Siebel has an in-depth experience in the software industry and navigated his prior company, Siebel Systems, to a good outcome in its sale to Oracle in 2006 for $5.8B, the analysts added.

Piper Sandler maintained its Neutral rating and raised the price target to $42 from $24.

Analyst Arvind Ramnani and his team said that C3.ai posted impressive fiscal third quarter results, with revenues of $94.3M (+8.2% quarter-over-quarter) ahead of Street’s $91M (+4.3%). Growth was driven by continued momentum both across Federal and commercial segments, including new logos and growing client wallet share.

The analysts noted that C3.ai’s expanded agreement with Microsoft is still in its early stages and, they think, could potentially drive material upside (which is not incorporated in their/consensus estimates).

C3.ai management emphasized that it remains confident in expanding its Federal business with the new administration (as AI spend remains a top priority). In addition, the company outlined that it is exploring several options with Baker Hughes as it comes up for renewal (balancing the stability of a large client and reliability with having the flexibility for new growth vectors), according to the analysts.

Ramnani and his team noted that from a margin perspective, the company is prioritizing growth over profitability given the vast opportunity that it sees for enterprise AI.

Related stocks: Snowflake (SNOW) -1%, Palantir (PLTR), -1%, SoundHound AI (SOUN) -4%, BigBear.ai (BBAI) -6%, while Intapp (INTA) and SAP (SAP) were largely flat premarket on Tuesday.