C3.ai: On a Growth Path with Challenges and Opportunities

The shares of C3.ai recorded a decline of 6.4% following the release of the latest quarterly report. This is surprising given an impressive 29% increase in revenue compared to the previous year. Analysts, such as JMP Securities' Aaron Kimson, still see significant potential. The price target was raised from 40 to 55 USD – an increase of 41% over the current price of 39 USD. C3.ai was able to demonstrate accelerated growth for seven consecutive quarters, indicating a thriving market for generative AI applications. The recently concluded strategic partnership with Microsoft expands the reach of C3.ai’s products through the global sales power of Azure. This cooperation increases the number of potential sellers from hundreds to up to 10,000. A current concern is the upcoming expiration of the contract with Baker Hughes in June 2025, which currently accounts for 18% of C3.ai's revenue. Interestingly, revenue excluding Baker Hughes increased by 41% in the last quarter, indicating a diminishing concentration risk. Despite optimistic growth forecasts of 25% for the current fiscal year 2025 and 22% for 2026, it may take several years for the stock price to reach the target of 55 USD. This depends on larger revenue increases or an adjustment of the valuation to the already high P/S multiple of 14. In the long term, C3.ai remains an interesting option for investors, not least because of remarkable partnerships like the one with Microsoft.