C3.ai (AI) pops 15% on a 'clean' Q3 report; analyst says valuation still unattractive

C3.ai (NYSE: AI) saw its shares surge more than 15% in premarket trading Thursday following the company’s better-than-expected Q3 report and upbeat guidance.

The enterprise AI technology developer posted a loss per share of $0.13 in the fiscal third quarter, notably better than the expected loss per share of $0.28. Revenue for the quarter came in at $78.4 million, surpassing the consensus estimate of $76.14 million.

Subscription stood at $70.4 million, making up 90% of the total revenue and marking a 23% increase from the $57.0 million reported in the same period last year.

The government sector emerged as the standout performer, with the state and local government contracts constituting 29% of the total bookings. Moreover, revenue and bookings from the federal government experienced significant year-over-year growth, with increases of 100% and 85%, respectively.

“We had a great quarter. Total revenue of $78.4 million grew 18% year-over-year, exceeding our guidance range. Customer engagement grew 80% year-over-year,” said C3.ai’s CEO and Chairman Thomas M. Siebel.

“Our significant first mover advantage in Enterprise AI is generating tailwinds as market interest in adopting AI accelerates.”

Looking ahead, C3.ai anticipates fourth-quarter 2024 revenue to be between $82 million and $86 million, compared to analysts' expectations of $83.91 million.

For the full fiscal year 2024, revenue is anticipated to land between $306 million and $310 million, slightly above the $305.5 million projected by Wall Street.

Morgan Stanley analysts were impressed by C3.ai's "clean quarter," especially its performance in the government segment.

"While this level of absolute growth is hard to sustain, management sees plenty of opportunity in both federal and state & local for years to come," analysts led by Sanjit K. Singh said in a note.

"However, with revenue growth still projected to come in below 20%, valuation does not yet look attractive at 12.3x sales," they added.

Morgan Stanley reiterated the Underweight rating and raised the price target to $21 from $20.

By Vahid Karaahmetovic

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