C3.ai Is Down 58%, but Here's Why I'm Still Not Buying the AI Stock

Core Viewpoint - C3.ai has developed over 40 industry-specific AI solutions but faces significant challenges, leading to a 58% decline in stock value since December, suggesting it may be a stock to avoid for investors [1][12]. Company State - C3.ai's enterprise software allows organizations to quickly develop and implement AI applications, which has fostered critical partnerships, particularly in the generative AI space [2]. - The company has maintained a partnership with Baker Hughes since 2019, along with extended collaborations with Amazon Web Services and Microsoft Azure, indicating the value of its solutions [3]. Financial Performance - For the first nine months of fiscal 2025, C3.ai reported over $280 million in total revenue, with a gross margin increase to 60$99 million, marking the end of a seven-quarter streak of accelerating revenue growth [6]. - Costs and expenses in Q3 exceeded $516 million, resulting in a net loss of$209 million, which is only a slight improvement from the $206 million loss in fiscal 2024 [7]. - The company's stock-based compensation in the first nine months was$174 million, contributing to a free cash flow of nearly negative $55 million [8]. Revenue Guidance and Valuation - Fiscal Q4 revenue guidance is projected between$104 million and $114 million, suggesting a 25% growth rate at the midpoint, but this does not address the disparity between revenue and expenses [9]. - C3.ai lacks profits, resulting in no P/E ratio, and while its price-to-sales (P/S) ratio of 7 is the lowest in over two years, the inability to cover operating expenses and negative free cash flow undermines this valuation [10]. Investment Outlook - Given the financial challenges and uncertainty surrounding the Baker Hughes partnership, it is advisable for investors to avoid C3.ai stock [12][13].