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On Monday, UBS analyst Radi Sultan maintained a Neutral rating on C3.ai (NYSE:AI) shares, with a consistent price target of $28.00. Currently trading at $26.24, the stock sits between its 52-week range of $17.03 to $45.08. Sultan’s commentary followed a detailed discussion with the company, aimed at addressing key questions from investors after the stock experienced a 21% surge post-earnings, which has since moderated to a 13% increase since the earnings report. According to InvestingPro data, C3.ai has shown significant volatility, with a beta of 2.04 and a 37.7% decline over the past six months.
The analyst expressed a cautious optimism regarding the company’s explanation for the decline in non-license subscription revenues. However, Sultan indicated that there are still uncertainties surrounding the revenue mix projected in C3.ai’s fiscal year 2026 guidance. To meet the midpoint of the FY26 revenue guidance, it is implied that non-license subscription revenues would need to average $61 million per quarter, marking a 15% increase compared to the fourth quarter run-rate. InvestingPro analysis shows the company has maintained strong revenue growth of 25.3% over the last twelve months, though it remains unprofitable with a negative EBITDA of $311.8 million.
Despite this potential, Sultan pointed out that non-license subscription revenues have decreased by approximately $4 million quarter-over-quarter in the last two quarters. Additionally, there is an expected reduction in revenues from Baker Hughes (NASDAQ:BKR) this year, although the exact impact on non-license subscription revenues remains unclear. A possible reason for the anticipated ramp-up in FY26 non-license subscription revenues could be the revenue lift from pilots that have been completed but not yet transitioned to production contracts. C3.ai has indicated that there are around 150 such "latent" pilots that are still "active," though they are not currently generating revenue.
Regarding federal contracts, Sultan highlighted the $350 million four-year expansion of the Air Force contract as a potential year-over-year growth driver for C3.ai. However, the analyst estimated that the revenue contribution from this contract in FY26 is likely to be modest, at around $25 million.
In conclusion, Sultan pointed out the lack of visibility into the revenue mix dynamics and, with the stock trading at approximately 7 times CY26 revenues, recommended a cautious stance, preferring to remain on the sidelines in the near term. InvestingPro analysis suggests the stock is currently fairly valued, with a Financial Health Score of 2.22 (FAIR). Subscribers can access 8 additional ProTips and comprehensive valuation metrics in the Pro Research Report, providing deeper insights into C3.ai’s investment potential.
In other recent news, C3 AI has secured a $13 million contract from the United States Air Force to enhance its AI-enabled predictive maintenance system. This task order is part of a larger $450 million agreement with the Air Force, aimed at expanding the deployment of predictive maintenance across various aircraft platforms. The contract, initially capped at $100 million, has been expanded to increase fleet availability and reduce lifecycle costs. KeyBanc Capital Markets recently raised its price target for C3 AI shares to $18, although it maintained an Underweight rating due to concerns about subscription revenue declines. Canaccord Genuity adjusted its price target for C3 AI to $28, citing growth concerns and ongoing cash burn, while maintaining a Hold rating. DA Davidson also revised its price target to $25, retaining a Neutral rating, following C3 AI’s stable revenue performance and strategic partnerships, including the renewal of a joint venture with Baker Hughes. These developments highlight the company’s ongoing efforts to expand its presence in the defense sector and address financial performance challenges.
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