On Thursday, KeyBanc Capital Markets downgraded c3.ai (NYSE:AI) stock from Sector Weight to Underweight, assigning a price target of $29. This represents a 28% downside from the current trading level. The downgrade is driven by concerns over the company's valuation and growth prospects.
According to InvestingPro data, the stock has shown strong momentum with a 38% gain over the past six months, though current analysis suggests the stock is trading above its Fair Value.
KeyBanc's decision comes amid observations that c3.ai's stock is trading at a premium compared to its peers. The firm notes that c3.ai's enterprise value to revenue ratio stands at 13.3 times, which is high when compared to peers that are growing at 10-20% and have an average multiple of 7.3 times. InvestingPro data confirms this premium valuation, with the company's Price/Book ratio at 6x and revenue growth at 21.7% over the last twelve months.
The analyst at KeyBanc expressed concern over the sustainability of c3.ai's revenue growth. Specifically, there is skepticism about the future given that subscription revenue growth, excluding upfront licenses, has slowed to a -1% year-over-year as reported in the second fiscal quarter.
Another factor contributing to the downgrade is the company's significant operating losses. The analyst highlights this as a key issue, considering the financial health and future profitability of c3.ai.
The report also points to potential risks associated with c3.ai's partnerships. There is uncertainty surrounding the renewal of the Baker Hughes (NASDAQ:BKR) agreement in fiscal year 2026. Additionally, there are doubts about the tangible outcomes of the Microsoft (NASDAQ:MSFT) partnership, which could impact c3.ai's performance if it does not yield material results.
In light of these concerns, KeyBanc has also adjusted its estimates for c3.ai, although the specifics of these adjustments were not disclosed in the context provided. The new rating and price target reflect KeyBanc's revised outlook on the stock's future performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.