Is C3.ai Stock a Buy?

C3.ai (AI 2.80%), a developer of enterprise artificial intelligence (AI) software, attracted a stampede of bulls when it went public on Dec. 9, 2020. It opened at $100 a share on the first day, which was more than double its IPO price of $42, and closed at a record high of $177.47 just two weeks later.

At its peak, C3.ai's market cap reached $17 billion, which was 93 times the $183 million in revenue it would actually generate in fiscal 2021 (which ended in April 2021). That bubbly valuation, further inflated by the buying frenzy in meme stocks, became unsustainable as its growth slowed down, it racked up more losses, and rising interest rates squeezed its valuations.

Image source: Getty Images.

Today, C3.ai trades at about $26.50 a share with a market cap of $3.5 billion, or 7.5 times the $465 million in revenue it's expected to generate in fiscal 2026. Should contrarian investors consider that pullback a good buying opportunity? Or is it a falling knife that will drop even lower?

What does C3.ai do?

C3.ai develops AI modules that can be installed in on-premises software, edge networks, public cloud platforms, and hybrid clouds to ingest a wide range of data. These modules can be integrated into a client's existing software applications or accessed as stand-alone services. It originally offered only subscriptions, but it rolled out usage-based fees in late 2022 to attract more customers.

C3.ai attracted a lot of attention for three reasons. First, it was founded and led by Tom Siebel, who sold his company Siebel Systems to Oracle for $5.85 billion in 2006. Second, its revenue surged 71% in fiscal 2020, and the bulls expected it to maintain that momentum as the AI market expanded. Lastly, its catchy ticker symbol attracted a lot of attention from retail investors.

How fast is C3.ai growing?

C3.ai serves a wide range of customers across 19 different industries. But its top customer is the energy giant Baker Hughes, which accounted for over a third of its revenue in fiscal 2024 through a joint venture that started in 2019.

That customer concentration isn't ideal, but C3.ai recently renewed that crucial deal through June 2028 upon its expiration this April. That renewal could buy it more time to diversify its customer base.

Data source: C3.ai.

C3.ai's growth slowed down in fiscal 2021 as the pandemic disrupted the energy industry and made it tougher to attract new customers. Growth recovered in fiscal 2022 as the pandemic passed, but rising interest rates, other macro headwinds, and intense competition throttled it again in fiscal 2023. C3.ai's new consumption-based plans also cannibalized some of its subscription-based plans.

But in fiscal 2024 and fiscal 2025, the company's revenue growth accelerated again as it rolled out more generative AI modules, secured more federal contracts, and launched new partnerships with Microsoft, Amazon Web Services (AWS), and McKinsey. Its consumption-based model also brought in new customers as its subscription revenue rose.

What will happen to C3.ai over the next year?

For fiscal 2026, C3.ai expects its revenue to rise 15%-25%, which matches analysts' expectations of 20% growth. However, the operating loss of $65 million to $100 million it expects wouldn't be much of an improvement from its adjusted operating loss of $88 million in fiscal 2025.

Using generally accepted accounting principles (GAAP), analysts expect its net loss to widen from $289 million in fiscal 2025 to $300 million in fiscal 2026. In other words, it's expected to lose nearly $1.65 for every dollar of revenue it generates this year.

Its stock-based compensation, which consumed 59% of its revenue in fiscal 2025, will also remain high as long as it lacks the cash to cover its salaries. It's already increased its outstanding shares by nearly 40% since its IPO, and that dilution could persist for the foreseeable future.

That might be why its insiders sold more than 3 times as many shares as they bought over the past 12 months -- even as top-line growth stabilized.

Is it the right time to buy C3.ai's stock?

C3.ai is still growing, and the extension of its joint venture with Baker Hughes gives it more time to expand its customer base. However, this underdog hasn't proven its business model is sustainable or that it has a meaningful moat against more diversified AI software companies like Palantir Technologies -- which is bigger, generating stronger sales growth, and consistently profitable on a GAAP basis.

So while C3.ai's stock might seem cheaper than it was during its meme stock days, it still doesn't seem like a compelling investment. Investors should stick with more diversified cloud plays like Microsoft or higher-growth AI plays like Palantir instead of wondering if C3.ai will ever grow at a sustainable rate.