C3.ai Q1 earnings preview: Where next for AI stock?

Key takeaways

• C3.ai has almost trebled in value in 2023 after attracting investors looking for AI stocks
• Management say C3.ai has never been in a better position, but is yet to show any real momentum from rising demand for AI.
• Pressure is building on C3.ai to accelerate revenue growth
• Shift to consumption-based pricing could provide new growth catalyst
• C3.ai aiming to turn profitable by the end of this financial year, but Wall Street remains unconvinced.

C3.ai earnings date and time

C3.ai will report first quarter earnings after US markets close on Wednesday September 6. A conference call and webcast will be held on the same day at 1400 PT (1700 ET).

C3.ai earnings consensus

Revenue is forecast to rise 9.6% year-on-year in the first quarter of its new financial year to $71.6 million.

Its adjusted operating loss – the key metric to watch – is estimated to come in at $26.6 million, which would be wider than the $14.5 million loss seen the year before.

Its adjusted loss per share is expected to come in at $0.17, which would widen from the $0.12 loss seen the year before.

C3.ai earnings preview

C3.ai shares suffered in August amid a broader selloff that involved AI stocks facing their first reality check since exploding in value amid the hype around the technology this year. The stock is trading almost three times as high as it was at the start of 2023 but is down about 33% from the peaks we saw back in June.

The bar has therefore come down since the start of August as valuations and AI excitement have tempered, but it is still high ahead of the results. The company has stirred plenty of excitement about its prospects, but pressure is building on it to start delivering.

“The interest in applying AI to business processes is more active than we've ever seen,” said the company in the last quarter. “As a result of increasing market demand for enterprise AI — and from our adoption of consumption-based pricing — we are seeing a substantial increase in opportunities and shorter sales cycles.”

CEO Thomas Siebel has said C3.ai “has never been better positioned” and that the C3 AI Platform is “increasingly recognized as the gold-standard in enterprise AI”.

Management are confident, but we are yet to see a tangible boost from AI. C3.ai is forecast to report a 9.6% rise in revenue in the first quarter to $71.6 million. That is a relatively underwhelming number for a small company that finds itself operating in the hottest space in the market right now. Sales growth has been underwhelming for the last three quarters and was up just 0.1% in the last one! Investors will expect topline growth to start accelerating from this very low base going forward, so C3.ai will need to start converting and monetising all this new interest in AI as quickly as possible.

(Source: Company reports, with estimates from Bloomberg consensus)

That growth may fail to get investors excited this quarter, especially as the rally in its share price has added around $2.4 billion to C3.ai’s valuation since the start of 2023. Therefore, a big beat could be needed (although unlikely considering consensus is in-line with its guidance), and/or an impressive outlook. Analysts are looking for C3.ai to target second-quarter revenue of $73.9 million, which would mark an acceleration in year-on-year growth to about 18%.

The ongoing shift to consumption-based pricing should provide a big boost to revenue assuming the companies and institutions currently piloting its AI applications or platform stay on as customers.

C3.ai is aiming to become profitable (in terms of adjusted operating profit) by the end of this financial year. However, Wall Street has doubts and remains sceptical considering the consensus still pencils-in losses throughout the 2025 financial year, giving C3.ai a task in convincing the markets about its prospects.

Wall Street is expecting C3.ai to target an adjusted operating loss of $20.6 million in the second quarter and the company has said its annual loss will be in the range of $50 million to $75 million.

Where next for AI stock?

C3.ai shares have found a floor following the selloff during August, having reliably bounced back around the $28 mark, in-line with the ceiling that held throughout the whole of the first quarter of 2023. Any sustained move below here could see the 200-day moving average, currently at $25, come in to provide a safety net.

The stock has unsuccessfully tested the 100-day moving average over the past three sessions, making $32, which also represents the trough we saw in late June, the immediate upside target. From there, it can try to climb toward the 50-day moving average at $36 before attempting to return back above $42.50.

We can see trading volumes have been gradually declining over the past three months alongside the fall in share price, which may present a bullish backdrop and suggest selling pressure is easing.

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