C3.ai (NYSE:AI) Misses Q2 Revenue Estimates, Stock Drops 12.6%

Enterprise AI software company C3.ai (NYSE:AI) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 19.4% year on year to $70.26 million. Next quarter’s revenue guidance of $76 million underwhelmed, coming in 24.6% below analysts’ estimates. Its non-GAAP loss of $0.37 per share was 75.3% below analysts’ consensus estimates.

C3.ai (AI) Q2 CY2025 Highlights:

• Revenue: $70.26 million vs analyst estimates of $94.1 million (19.4% year-on-year decline, 25.3% miss)
• Adjusted EPS: -$0.37 vs analyst expectations of -$0.21 (75.3% miss)
• Adjusted Operating Income: -$57.82 million vs analyst estimates of -$37.83 million (-82.3% margin, 52.9% miss)
• Revenue Guidance for Q3 CY2025 is $76 million at the midpoint, below analyst estimates of $100.8 million
• Operating Margin: -178%, down from -83.2% in the same quarter last year
• Free Cash Flow was -$34.3 million, down from $10.33 million in the previous quarter
• Market Capitalization: $2.31 billion

Company Overview

Named after the three Cs of its original focus—carbon, cloud computing, and customer relationship management—C3.ai (NYSE:AI) provides enterprise AI software that helps organizations develop, deploy, and operate large-scale artificial intelligence applications across various industries.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, C3.ai grew its sales at a 11.9% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, C3.ai missed Wall Street’s estimates and reported a rather uninspiring 19.4% year-on-year revenue decline, generating $70.26 million of revenue. Company management is currently guiding for a 19.4% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 18.3% over the next 12 months, an acceleration versus the last three years. This projection is admirable and indicates its newer products and services will catalyze better top-line performance.

Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Customer Acquisition Efficiency

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

C3.ai is very efficient at acquiring new customers, and its CAC payback period checked in at 28.6 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

Key Takeaways from C3.ai’s Q2 Results

We struggled to find many positives in these results. Its revenue guidance for next quarter missed and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 12.6% to $14.59 immediately following the results.

C3.ai’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.