Stock C3.ai: A tale of two entities

C3. have (AI 0.04%) the stock presents investors with a serious dilemma.

Part of C3.ai is an operations business that provides turnkey artificial intelligence (AI) solutions to organizations spanning multiple industries that help them leverage the benefits of technology. However, investors also have to deal with C3.ai financially, an entity facing considerable financial losses and other concerns.

So the question for investors is which part of this business should drive SaaS stock investment decisions. Let’s take a closer look.

C3.ai from an operational point of view

Certainly, C3.ai looks like a dream for an AI-focused growth investor. The company is an enterprise software company that can bring AI capabilities to an organization through several methods.

His company’s AI offers more than 40 industry-specific solutions to meet what it calls business-critical needs. Indeed, companies in a variety of industries have incorporated C3.ai software into their operations.

In the past, it has been particularly strong on the oil and gas side, particularly in the energy company relationship Baker Hughes.

As the Baker Hughes collaboration appears to have become less significant, C3.ai has turned to its other clients, with 71 other organizations signing agreements with the company in the last quarter alone. This included 25 agreements signed with US state and local governments

Also, more than 30 percent of reservations came from part of the federal government, including three branches of the U.S. military. Given such successes, it’s probably hard for investors not to believe in C3.ai from an operational standpoint.

C3.you financially speaking

Unfortunately, these new offerings don’t seem to have translated into a financially strong C3.ai. For the first quarter of fiscal 2025 (ended July 31), revenue was $87 million, a 20% increase over last year’s levels.

That was an improvement from 16% growth in fiscal 2024. It may also indicate that the company’s transition from subscription-based to consumer pricing, which began in fiscal 2023, may stop weighing heavily on revenue growth .

However, the higher revenue growth does not provide any relief for C3.ai’s operating expenses. At $125 million for the fiscal first quarter, that’s 43% higher than the company’s quarterly revenue.

Shareholders should note that stock-based compensation expense, a non-cash expense, accounted for $55 million of its operating expenses. From a cash perspective, that means its actual operating expenses are below revenue. However, this leaves C3.ai with no obvious path to profitability.

The net loss of $63 million in the first quarter of fiscal 2025 was only a negligible improvement from the $64 million loss in the year-ago quarter. Despite these results, CEO Thomas Siebel said in a recent CNBC interview that the company’s profitability is a “mathematical certainty.”

However, until the company shows the numbers to back up that claim, the stock may continue to repeat its gains.

Avoid C3.ai stock

Given the state of both sides of the business, the negatives of financial C3.ai seem to outweigh the positives of AI-led C3.ai on the operations side. Thus, investors should probably avoid the stock for now.

Of course, it seems to have carved out a niche for itself in the enterprise software business, helping organizations use AI. This is a strong motivator for these entities to partner with the company. Unfortunately for shareholders, the financials do not show a “mathematical certainty” that will lead C3.ai stock to profitability.

The most important point of concern is operating expenses that far exceed revenues. While we know that stock-based compensation has led to this situation, sustained profitability will be nearly impossible until it grows revenues and reduces operating expenses.

Ultimately, until C3.ai can either grow its earnings faster or bring its stock-based compensation expense more in line with earnings, investors should stay away from this stock.