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On Wednesday, JPMorgan issued a new rating for C3.ai (NYSE:AI), downgrading the stock from Neutral to Underweight and setting a price target of $28.00. The financial firm has voiced concerns over the company's performance, which they described as uneven and lacking compared to its peers.
C3.ai, a company specializing in Artificial Intelligence solutions, has shown improvements in revenue growth, but the costs associated with driving this growth have been high. According to the analyst, the incremental margins have been flat in the last twelve months, registering a meager 2% increase, with the current fiscal year's guide suggesting a -30% incremental margin.
The analyst noted that while C3.ai has established strong strategic partnerships, one of its key relationships with Baker Hughes (NASDAQ:BKR) is at risk of expiring in April 2025, which could present a headwind for the company. However, this may be somewhat mitigated by a new expanded partnership with Microsoft (NASDAQ:MSFT), which is anticipated to significantly broaden C3.ai's go-to-market (GTM) reach and potentially aid in growth.
Despite the potential benefits of the partnership with Microsoft, JPMorgan remains cautious. The firm is looking for concrete evidence of the partnership's success before fully endorsing its ability to contribute positively to C3.ai's growth trajectory. The downgrade reflects a conservative stance on the stock until such proof points are observed.
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