Shares in C3.ai fell Thursday after the software maker backed off its target to turn profitable on an adjusted basis by the fourth quarter of this fiscal year amid growing investments in artificial intelligence. AI stock ended the trading day down more than 12%.
In the July quarter, C3.ai said it lost 9 cents per share on an adjusted basis. That compares with a 12-cent loss a year earlier. Revenue rose 11% to 72.36 million. Wall Street analysts polled by FactSet had predicted a loss of 17 cents a share on revenue of $71.6 million.
Gross margin came in at 68.6%, below analyst estimates of 73.1%, amid investments in artificial intelligence. The company now expects an operating loss of $100 million in fiscal 2024. Further, that's up from an estimated operating loss $70 million.
Bank of America analyst Brad Sills holds an underperform rating on AI stock.
"Q1 results do not suggest that C3 is benefiting from growing demand for AI. Metrics such as average total contract value and largely unchanged fiscal 2024 revenue outlook do not point to any meaningful AI tailwinds either," Sills said in a note to clients.
At Deutsche Bank, analyst Brad Zelnick said in his note to clients: "C3.ai reported fiscal Q1 results that are unlikely to quell concerns about customer traction/commitments, the path to profitability, steady state margins of the business ex-Baker Hughes, and level of generative AI monetization on its platform relative to management's very bullish commentary."
For the current quarter ending in October, the company predicted revenue in a range of $72 million to $76.5 million. Further, analysts polled by FactSet had called for revenue of $78 million.
AI Stock: Profitability Pushed Out
Meanwhile, AI stock lost 12.2% to close at 27.61 on the stock market today. Shares in C3.ai had surged in 2023 amid buzz over startup OpenAI, ChatGPT and generative AI technology.
"While the company continues to drive free cash flow positive for Q4 and for the full year fiscal 2025, the company is now backing off its prior goal of achieving non-GAAP profitability by Q4 fiscal 2024," JPMorgan analyst Pinjalim Bora said in a note.
Bora added: "Net/net, while we are encouraged by the strong sequential subscription growth in Q1, likely indicating early signs of the consumption based pricing model taking hold, and we understand that Gen AI presents a material opportunity, we don't see top-line metrics materially inflecting higher at this point to justify the increased investment posture."
AI stock had gained 181% in 2023 ahead of the C3.ai earnings report. But shares had been up 257% at one point amid hype over artificial intelligence stocks.
AI Stock: Pilot Projects Underway
In the C3.ai earnings report, the company said it expects revenue growth to reaccelerate as more AI pilot projects ramp up production.
At Oppenheimer, analyst Tim Horan said in a note: "C3.ai is in the right place at the right time, as every enterprise evaluates the few purpose-built platforms to build and deploy AI applications, but the food chain needs time to develop."
Meanwhile, C3.ai is one of many AI stocks to watch. Also, C3.ai had a Relative Strength Rating of 97 out of a best-possible 99 heading into the earnings report, according to IBD Stock Check-up.
Further, C3.ai's initial public offering in early December 2020 raised $651 million.
The software maker helps companies build artificial intelligence applications, and targets the energy, financial services and defense markets. In December, the enterprise AI software provider changed its pricing model from subscription to consumption-based.
At Wedbush, analyst Daniel Ives maintained an outperform rating on AI stock. Ives on Thursday lowered his price target to 42 from 50 citing "a push out of profitability."
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