Artificial intelligence software provider C3.ai (AI) is struggling to live up to the hype its ticker suggests. According to critics, C3.ai has stumbled badly in the very race it was built to win. Paradoxically, while the broader AI market is experiencing a historic boom, C3 has failed to capitalize, watching rivals surge ahead during the most favorable conditions imaginable. Its inability to convert the AI gold rush into meaningful revenue growth or stronger margins has left shareholders (and potential investors) disillusioned—and the result is stark: nearly half of its market value has evaporated this year alone.
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Still in the pre-profit stage, C3.ai reported year-over-year revenue decline in the most recent quarter, highlighting structural challenges in capitalizing on momentum. The issue isn’t necessarily that the technology is bad, but adoption at scale has been slow—customers are still using demo licenses, and few are converting to full contracts.
The company’s heavy reliance on professional services further limits margins, and the high degree of customization required for each contract increases costs while hindering scalable growth. Even with a cash-rich balance sheet, I don’t see anything on the horizon that would materially change this picture. For that reason, I would assign C3.ai a Sell rating, as its seemingly low valuation reflects skepticism about execution rather than a genuine bargain.
Structural Headwinds Overshadow C3.ai’s AI Potential
Taking a step back to understand the C3.ai case, the AI software company basically generates revenue by licensing its software to enterprises (C3 AI Suite plus industry-specific AI apps), through both recurring subscriptions and usage-based pricing, along with some implementation services. The long-term bull case hinges on C3.ai successfully transitioning to a consumption-based SaaS model at scale (currently accounting for ~85% of total revenue), where the share of services is expected to shrink and margins are anticipated to improve.
Margins are currently one of the company’s main weaknesses. C3.ai’s gross profit margin is 56%, which is quite low for a SaaS company—especially compared to Palantir’s (PLTR) ~80% margins, one of the hottest AI software players today.
The lower margin reflects high costs for professional services and cloud hosting, as C3.ai apps run on top of hyperscalers such as AWS and Azure. Its core model, which relies on delivering highly customizable software, translates into labor-intensive work that carries much higher direct costs than a pure SaaS model, driving up COGS.
From the outset, this gives C3.ai a structural disadvantage in its cost base compared to typical SaaS companies, limiting its ability to achieve profitability and generate consistent cash flow. The problem is compounded by the company’s relatively small revenue base (~$380–$400 million annual run rate, versus billions for Palantir or Snowflake (SNOW)). With a limited customer base and slower top-line growth, it’s very difficult for C3.ai to achieve the operating leverage needed to spread fixed delivery costs across a wider pool.
C3.ai Struggles to Scale During the AI Boom
Over the past couple of years, during the AI boom, the market has largely priced C3.ai based on the company’s ability—still in the pre-profit stage—to scale its business to a point where costs can be better diluted.
The more than 63% decline since June 2023, when AI shares were experiencing their most pronounced rally, reflects the market’s skepticism about C3.ai’s ability to deliver on that promise. To make matters worse, low margins limit profit generation, and revenues have been shrinking. Negative growth amid an AI boom is a massive red flag, undermining any case for higher valuations.
C3.ai’s top-line growth has been highly volatile since 2022. Over the last twelve months, revenues grew just 14.3%, down from 25% the year before. In the most recent quarter, revenues decreased 19.4% year-over-year, reaching $70.3 million compared to $87.2 million in the same period last year.
A particularly concerning detail was a $15.9 million sequential decline in demonstration license revenue, indicating that fewer new pilots were signed or renewed. Operating expenses have largely moved in line with top-line trends, meaning operating losses still consume 101% of revenue, up from 83% the previous year.
The management team, which recently underwent a CEO change—Thomas Siebel stepped down due to health reasons—blamed the “dreadful” results on the last earnings call, citing “probably 70% sales disruption and 30% my not being as involved in the details as I’ve previously been.”
In my view, this points to a structural problem: the sales team may be unable to close deals fast or smoothly enough, suggesting enterprises are hesitant to experiment with C3.ai’s tools, particularly if competitors offer better-integrated or cheaper trials.
Cash-Rich But Light on Growth
Since Stephen Ehikian was appointed as the new CEO, C3.ai shares have fully rebounded following a poor quarterly report on September 3rd, showing that the market has some hope for an eventual turnaround. However, the company’s guidance for the upcoming quarter remains weak, with revenues expected between $72–80 million, implying a 19% decline. This reinforces that the headwinds seen in Q1 are not just temporary.
Looking at the bigger picture, the market currently prices C3.ai to deliver $310.2 million in revenues for Fiscal 2026 (ending April 2026)—roughly 26% below the consensus before the earnings results, which had anticipated $390.8 million. That’s a sizable adjustment. It’s somewhat comforting in C3.ai’s case because the company has a robust net cash position of $650 million—meaning nearly 29% of its market value is represented by cash on the balance sheet.
Stripping out cash, C3.ai’s enterprise value (EV) stands at $1.6 billion. That matters because if the company can eventually prove product-market fit and grow profitably, the EV looks modest relative to its total addressable market (TAM)—estimated at $600–700 billion by 2030 for enterprise AI software. This TAM story helps justify the idea that C3.ai could be a multi-bagger if execution improves. However, for now, the market values the company at only ~5.8x sales, which is low compared to AI software peers, reflecting skepticism that C3.ai will ever capture more than a niche slice of that massive market.
Is C3.ai a Good Stock to Buy?
Wall Street ratings on C3.ai are currently split between skeptics and bears. Of the 15 analysts covering the stock over the past three months, six are neutral, six are bearish, and only three are bullish on the stock. C3.ai’s average stock price target is currently $17.38, implying less than 1% downside from the current share price over the coming year.
C3.ai Stays Stuck on the Sidelines in the AI Race
It’s difficult to say whether C3.ai shares are meaningfully de-risked, especially given that they are hitting yearly lows right in the middle of the AI boom—a period when the company should be capturing customers at full speed. In my view, the inability to grow sales during such a bonanza highlights serious structural problems, mainly a business model built on an inherently bloated cost structure. Without achieving operational leverage, the company risks entering a spiral of earnings destruction, which could eventually erode its currently healthy net cash position.
The good news is that having a substantial cash cushion allows C3.ai to buffer itself, potentially reinvent operations, and pursue a turnaround. Moreover, secular tailwinds in AI software adoption should, in theory, support scaling its SaaS offerings. But at the moment, I don’t see sufficient evidence—including valuation—to suggest a meaningful turnaround is imminent. Despite its potential to be relevant in the AI boom, I believe C3.ai remains on the sidelines in this race. For these reasons, I rate C3.ai as a Sell.