Generative AI And Digital Transformation Will Reshape Markets

Key Takeaways

• Expanding partnerships and contract renewals position C3.ai for outsized revenue growth, stronger sales efficiency, and greater earnings visibility across core and emerging sectors.
  
• Early leadership in generative and Agentic AI plus broad adoption in critical industries establish C3.ai as a default, long-term platform standard for enterprise and government AI needs.
  
• Competitive pressures, reliance on key partnerships, and ongoing unprofitability threaten revenue stability, margins, and market differentiation amid industry commoditization and advancing rivals.

Catalysts

Operates as an enterprise artificial intelligence (AI) application software company in North America, Europe, the Middle East, Africa, the Asia Pacific, and internationally.

• While analyst consensus believes expanded partnerships with hyperscalers (Microsoft, AWS, etc.) will drive solid incremental growth and better sales efficiency, the sheer scale of these alliances-already generating a 419% increase in partner-supported bookings in a single quarter and targeting over 600 joint accounts with Microsoft alone-could enable C3.ai to triple or quadruple its revenue base within a few years, far outpacing current expectations for revenue growth.
  
• Analyst consensus expects generative and agentic AI innovation to modestly expand C3.ai's addressable market and improve the product suite, but C3.ai's early leadership, broad customer deployments, and the recent patent on Agentic AI set it up to dominate a market that Gartner estimates will grow nearly 10-fold by 2030, enabling exponential growth in high-margin recurring revenue well ahead of consensus assumptions.
  
• C3.ai's renewed and expanded Baker Hughes deal-having already added $0.5 billion in historical revenue-signals that similar broad-based, multi-year renewals with other core clients in energy, chemicals, and manufacturing are likely, providing an accelerating base of contracted revenues and greater earnings visibility.
  
• The rapid 48% year-on-year expansion outside oil and gas, alongside surging adoption from state and local governments (over 100% growth in that vertical alone), suggests C3.ai is becoming the default AI application layer across mission-critical U.S. infrastructure, setting up a compounding effect for cross-sell/upsell, customer retention, and long-term net margin expansion.
  
• Accelerated enterprise and government adoption of turnkey AI fueled by mounting labor shortages in AI/ML talent, regulatory ESG and sustainability mandates, and an increased focus on operational resilience, positions C3.ai's uniquely broad and vertical-specific AI app portfolio as an unavoidable platform standard-setting the stage for sustainable, multi-decade compounding revenue and margin growth.

C3.ai Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on C3.ai compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming C3.ai's revenue will grow by 31.8% annually over the next 3 years.
• Even the bullish analysts are not forecasting that C3.ai will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate C3.ai's profit margin will increase from -74.2% to the average US Software industry of 13.2% in 3 years.
• If C3.ai's profit margin were to converge on the industry average, you could expect earnings to reach $118.0 million (and earnings per share of $0.74) by about August 2028, up from $-288.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 83.1x on those 2028 earnings, up from -10.4x today. This future PE is greater than the current PE for the US Software industry at 39.7x.
• Analysts expect the number of shares outstanding to grow by 5.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

C3.ai Future Earnings Per Share Growth

Risks

• Accelerating commoditization of AI and machine learning tools, combined with enterprises increasingly adopting open-source or in-house solutions, could drive down C3.ai's average selling prices and increase customer churn, which would directly undermine revenue growth and market share.
  
• Persistent struggles to achieve profitability are evident, with operating and net losses continuing despite revenue growth, and management noting only a future path to profitability reliant on scaling; sustained unprofitability may pressure net margins and could limit shareholder returns.
  
• The company's deep reliance on large contracts and key partnerships-particularly with Baker Hughes and major cloud providers-creates revenue concentration risk, so the loss or downsizing of any such relationship could result in significant volatility in quarterly revenue and cash flow.
  
• Rapid progression of larger, well-capitalized competitors like Microsoft, Google, and Amazon in integrating enterprise AI natively into their cloud or ERP stacks could erode C3.ai's differentiation, reducing its pricing power and shrinking its addressable market, ultimately impacting both revenue and long-term earnings potential.
  
• The need for ongoing, significant investment in research and development and partner enablement to keep up with advancing AI technologies and ecosystem expansion has already led to gross margin and operating margin moderation, which could depress net margin and force future capital raises if free cash flow does not improve as predicted.

Valuation

• The assumed bullish price target for C3.ai is $49.08, which represents two standard deviations above the consensus price target of $29.43. This valuation is based on what can be assumed as the expectations of C3.ai's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $891.3 million, earnings will come to $118.0 million, and it would be trading on a PE ratio of 83.1x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $22.43, the bullish analyst price target of $49.08 is 54.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.