C3.ai Inc. (AI) shares rose Thursday morning after the artificial intelligence software company delivered second-quarter results that exceeded analyst expectations, suggesting new CEO Stephen Ehikian might be steadying the ship after last quarter's execution stumbles.
What the Analysts Are Saying
Wall Street had mixed reactions to the results, with ratings spanning from bullish to skeptical. Wedbush analyst Dan Ives maintained his Outperform rating with a $20 price target, while Canaccord Genuity analyst Kingsley Crane kept a Hold rating with a $16 target. DA Davidson analyst Lucky Schreiner stayed cautious with an Underperform rating and $13 price target, and Needham analyst Mike Cikos held his neutral stance.
The Revenue Picture
C3.ai posted total revenue of $75.1 million for the quarter, which landed above the Street's $74.9 million consensus but fell short of the midpoint of the company's own guidance range. According to Ives, the new leadership team is working to recover from what he characterized as "disastrous execution last quarter."
The year-over-year comparison wasn't pretty—total revenue dropped 20%—but the sequential trends told a better story. Subscription revenue declined 22% compared to the prior year, which represents meaningful improvement from the previous quarter's brutal 30% drop. Crane noted that non-GAAP gross margins remained under pressure at 55%, though the sequential improvement after last quarter's contraction offered some comfort.
Net new revenue came in around $4 million, driven partly by growing license demonstration revenue from partners, according to Schreiner.
Federal Momentum Despite Shutdown Chaos
One bright spot emerged from an unexpected place: the federal government business. Despite a 43-day government shutdown that complicated deal closures, C3.ai recorded 89% growth in federal bookings. Ives noted momentum building in the federal segment during the third quarter, while Cikos highlighted that management expects this business to remain "a durable growth engine."
The government's shifting priorities are working in C3.ai's favor. Rather than building custom solutions internally, federal agencies are increasingly buying commercial software off the shelf. Combined with initiatives to drive AI adoption and reindustrialization efforts like the Maritime Industrial Base, the federal opportunity looks substantial.
Partner Ecosystems Taking Center Stage
C3.ai's relationships with tech giants are proving increasingly important to its strategy. The company jointly closed 24 agreements through its hyperscaler partnerships. Its collaboration with Microsoft Corp. (MSFT) expanded deal activity by 146% year-over-year, while the partnership with Amazon.com Inc.'s (AMZN) AWS resulted in nine closed agreements and a 172% expansion in the joint qualified pipeline.
Crane emphasized that Microsoft, AWS, McKinsey, Baker Hughes, and Booz Allen are playing larger roles in pipeline generation—a sign that the company's go-to-market approach is evolving toward more partner-driven distribution.
Looking Ahead
Management reintroduced fiscal 2026 revenue guidance of $289.5 million to $309.5 million, which implies a 23% decline from current levels. For the third quarter, the company is guiding to $72 million to $80 million in revenue, compared to analyst estimates of $75.6 million for the quarter and $298.7 million for the full fiscal year.
Schreiner observed that while C3.ai is "still playing catch up from last quarter's large miss," the company managed to avoid negative fallout from the federal shutdown. The question now is whether the sequential improvements represent the beginning of a genuine turnaround or just a temporary reprieve.
Price Action: Shares of C3.ai were up 2.33% to $15.36 at the time of publication Thursday.
