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On Tuesday, JPMorgan updated its outlook on c3.ai (NYSE:AI), increasing the price target to $28.00 from the previous figure of $19.00, while maintaining a Neutral rating on the stock. The revision comes as the company's stock trades near its 52-week high of $42.94, having delivered an impressive 45% return year-to-date. According to InvestingPro data, the company's current market capitalization stands at $5.15 billion, with revenue growing at 21.73% over the last twelve months.
The new price target is set with a December 2025 perspective and is based on an estimated 7x enterprise value to calendar year 2026 expected (EV/CY26E) revenue. This is an uptick from the previous valuation which was pegged at approximately 5x EV/CY25E revenue. The adjustment aligns with the valuation multiples of comparable infrastructure software companies that are experiencing forward twelve months (FTM) revenue growth exceeding 20%.
The rationale for c3.ai's valuation at a significant discount relative to peers such as Cloudflare (NYSE:NET), CrowdStrike (NASDAQ:CRWD), Datadog (NASDAQ:DDOG), Snowflake (NYSE:SNOW), GitLab (GTLB), Zscaler (NASDAQ:ZS), CyberArk (CYBR), and SentinelOne (NYSE:S) is twofold. Firstly, although c3.ai is anticipated to grow FTM revenue at a rate similar to the median of its comparison group, it operates on a much smaller scale—80% smaller in terms of revenue. Secondly, c3.ai's profitability is notably lower than its counterparts.
InvestingPro analysis reveals that despite maintaining a solid gross profit margin of 59.71%, the company reported negative EBITDA of $301.44 million, highlighting the profitability challenges. For deeper insights into c3.ai's financial health and detailed peer comparison metrics, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
While the company is expected to achieve a 25% growth in FTM revenue, comparable to the 24% median of its peers, its FTM free cash flow (FCF) margin is projected to be negative at (10%). This results in a combined growth and margin profile of 14%, significantly lower than the comparison group's average of a positive 23% unlevered FCF margin, leading to a combined growth and margin figure of approximately 46%. Moreover, c3.ai's projected pro forma operating margin for calendar year 2025 stands at (30%), in stark contrast to the +15% average of its peers.
Based on InvestingPro's Fair Value analysis, the stock currently appears overvalued, with 13 additional ProTips available to subscribers providing crucial insights into the company's financial position and market momentum.
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