To The Moon

$C3.ai, Inc.(AI)$

C3.ai (ticker: $AI) is down roughly 26% year-to-date in 2025, underperforming both the broader tech sector and AI-focused peers. However, the company recently released its quarterly earnings report, and Wall Street responded positively, driving the stock higher in the short term. So, what's really going on here?

In this breakdown, I’ll walk you through my updated analysis of C3.ai, incorporating their latest results. I’ll also share my updated fair value estimate using a proprietary discounted cash flow (DCF) model. Finally, I’ll give you a clear verdict: Is C3.ai a buy, hold, or sell after this latest report?

Why I’ve Had C3.ai Rated as a Hold Throughout 2025

Let me start with something important: I’ve had C3.ai rated as a "Hold" all year long, and not a Buy. If you followed that recommendation, you avoided a 26% loss in 2025 so far.

When it comes to tech companies in volatile growth sectors — particularly those exposed to buzzwords like “AI” — it’s easy to get caught up in the hype. But my framework is disciplined. It emphasizes sustainable fundamentals, robust unit economics, and a rational margin of safety.

Now that C3.ai has reported fresh earnings, I’ve taken the opportunity to re-evaluate its business and update my recommendation. Let’s dive into the details.

Q4 FY2024 Earnings Review: Growth Accelerates, But Challenges Remain

C3.ai ($AI) released its fiscal fourth-quarter 2024 earnings on May 29, 2024, and the results sparked renewed investor optimism. The company exceeded revenue expectations, demonstrated improving operating leverage, and showed momentum in customer acquisition — particularly in the federal space.

But while top-line growth is accelerating, the company still faces challenges with profitability and long-term margin expansion. Let’s take a detailed look at the numbers and what they mean for investors.

Headline Financials: Q4 FY2024 (Ended April 30, 2024)

• Total Revenue: $86.6 million — up 20% year-over-year, beating the company’s own guidance. This marked the fifth consecutive quarter of revenue acceleration.

• Subscription Revenue: $79.9 million — a 41% year-over-year increase, and now makes up 92% of total revenue. This shift toward subscriptions indicates a stronger recurring revenue base, something investors always want to see in software platforms.

• Professional Services Revenue: $6.7 million — continues to decline as a percentage of total revenue, which is consistent with C3.ai’s strategy to automate implementation and reduce reliance on labor-intensive deployments.

• Gross Profit:

  GAAP: $51.6 million (60% margin)

  Non-GAAP: $60.9 million (70% margin) This represents a notable year-over-year improvement in gross margin — signaling more efficient operations and better software scalability.

• Net Loss Per Share:

  GAAP: $(0.59)

  Non-GAAP: $(0.11) The non-GAAP loss is narrower than expected and highlights the positive trend in operating leverage.

• Free Cash Flow (FCF): +$18.8 million — a critical milestone, as this is the first time in the company’s history it generated positive free cash flow for a quarter. This is particularly encouraging given its past cash burn concerns.

• Cash and Marketable Securities: $750.4 million — a robust cash position with less than $5 million in debt, giving the company significant flexibility to invest, weather volatility, and pursue strategic deals.

Revenue Growth: The Bright Spot in C3.ai’s Business

Over the past five years, C3.ai has demonstrated strong revenue growth. Here's a quick look:

• 2019 Revenue: $91.6 million

• TTM Revenue (2025): $389 million

• Management Guidance for FY2026: $447 million to $484 million

If we take the midpoint of that range, it implies a year-over-year growth rate of approximately 24%, a healthy clip for a company in this space.

Even more impressively, the company has achieved a compound annual growth rate (CAGR) of 31.7% between 2019 and now. This confirms that C3.ai has executed well on expanding its top line — no small feat, especially for a company navigating the early innings of a highly competitive AI platform landscape.

It’s worth noting that the only real hiccup came in 2022, when recession fears and rising interest rates caused a temporary slowdown in enterprise tech spending. But the company appears to have navigated through that environment better than some expected.

The Real Concern: Unit Economics and ROIC Deterioration

Unfortunately, where C3.ai continues to struggle is in its unit economics and profitability profile.

If you’ve read my book, you’ll know I place heavy emphasis on return on invested capital (ROIC) as a key metric for measuring business efficiency. It tells you how much value a company is generating relative to the capital it employs.

C3.ai’s ROIC is not just weak — it’s alarmingly negative and deteriorating:

• ROIC in 2021: -60%

• ROIC in latest trailing 12 months: -157%

That’s a steep decline, and it suggests that while the company is attracting customers and generating revenue, it’s doing so at a very high cost — possibly unsustainable in the long run.

This is a classic red flag you often see in young growth companies. They chase market share by offering low pricing or high-touch services, which pleases customers but destroys shareholder value. It's essentially buying growth at a loss.

Until C3.ai can demonstrate a credible path to turning this around — particularly by improving margins and controlling costs — it’s hard to assign the stock a Buy rating.

Improving Metric: Operating Cash Flow to Sales

Now let’s move to a more optimistic development: operating cash flow.

Here’s what I found:

• OCF/Sales in 2023: -43%

• OCF/Sales in most recent TTM: +10.6%

That’s a massive turnaround, and it shows that management is improving cash discipline even as revenue grows. This metric moving from deep red into positive territory is a signal that cost structure improvements or more disciplined client engagements are beginning to bear fruit.

If this trend continues, it could be a leading indicator of eventual profitability down the road.

DCF Valuation: What Is C3.ai Really Worth?

Let’s now look at valuation.

Using my proprietary discounted cash flow model, I calculated an intrinsic value of $27.44 per share for C3.ai, while the stock currently trades at $25.62.

That's a small premium — suggesting the stock is fairly valued or slightly undervalued. But here’s the key: when the valuation gets this close, I always apply a margin of safety of at least 5–10%, depending on the business quality and execution risk.

Here are the key assumptions behind the model:

• Beta: 2.05 (indicating high volatility and above-average market risk)

• Cost of Debt: 8.5%, though the company carries very little debt — less than $5 million — and has over $730 million in non-operating assets

• Target Capital Structure: 90% equity, 10% debt

• Weighted Average Cost of Capital (WACC): 16%

• Free Cash Flow Break-even: Projected in 2028

• Transition Growth (2030–2034): 22.5% annually

• Terminal Growth Rate (2035 onward): 5%

The model reflects optimism about the long-term secular growth in the artificial intelligence sector, where C3.ai is positioned. But it also bakes in the current operational challenges, particularly around profitability.

Final Rating: Buy, Hold, or Sell?

So what’s the bottom line? As of June 3, 2025, I’ve chosen to maintain my Hold rating on C3.ai stock.

Yes, the company is closer to a Buy than a Sell. It’s slightly undervalued, operating in a high-growth sector, and showing improvement in cash flow. Revenue growth remains strong. These are all compelling factors.

But the persistent weakness in ROIC and the lack of consistent profitability hold me back. If management continues making progress on those fronts — and if cash flow trends stay positive — then I wouldn’t be surprised if I upgrade the stock later in 2025.

Right now, though, it’s not quite there. It’s a Hold, with a positive bias.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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