D.A. Davidson on Thursday initiated coverage on C3.ai with a neutral rating ahead of its third quarter earnings report. Upside for AI stock from a recently announced Microsoft deal will take a while to kick in while a key customer contract is up for renewal, said D.A. Davidson.
AI stock has climbed 31% in 2024 despite a sell-off on weak subscription revenue when the software maker reported July quarter earnings.
Also, earnings for AI stock are due Monday.
"Shares are up over 50% in the past month in part due to its recently announced strategic alliance with Microsoft which will enhance C3.ai's go-to-market and product roadmap," said D.A. Davidson analyst Lucky Schreiner in a report. "We view potential benefits from this alliance likely to come to fruition over the long run creating a tricky setup near term for the stock."
For Q3, analysts predict a 14-cent loss on revenue of $97.4 million, up 24% from a year earlier. That would be the fourth straight quarter of slightly accelerating top-line growth
AI Stock: Baker Hughes Renewal?
"We do not yet have confidence subscription revenue will rebound this quarter," added Schreiner. "We remind investors that the Baker Hughes contract is set to end in June of 2025. This relationship has been very beneficial to C3.ai over the years and Baker Hughes is expected to represent 19% of total revenue in fiscal 2025 based on management guidance and other disclosures. We note that the key point person for the C3.ai relationship with Baker Hughes recently left Baker Hughes adding uncertainty around the likelihood and structure of a renewed contract between the two companies."
Microsoft's Azure business will provide cloud computing services to artificial intelligence software maker C3.ai (AI) under an expanded partnership. The companies announced the partnership targeting enterprise customers at Microsoft's Ignite cloud computing conference.
C3.ai has told analysts it expects revenue growth to reaccelerate as more AI pilot projects ramp up into commercial production.
C3.ai Stock
On the stock market today, shares rose 1.4% to 38.10. Shares have been consolidating since surging in late November on expanded Microsoft Azure deal. Investors could view the Nov. 25 high of 39.88 as a high handle to a nine-month consolidation or a handle to a base going back to mid-2023.
Also, C3.ai stock had a Relative Strength Rating of 89 out of a best-possible 99 heading into the earnings report, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
