C3.ai Inc (NYSE: AI) just announced a strategic alliance with Microsoft Corp (NASDAQ: MSFT).
Shares of the enterprise artificial intelligence company are up 25% at writing.
Microsoft will now be the “preferred cloud provider for C3 AI offerings” and will help market the company’s products as well, according to a press release on Tuesday.
C3.ai stock is still down about 10% versus its year-to-date high in late February.
MSFT news doesn’t mean much for C3.ai stock
Microsoft expects this deal to help “enhance existing capabilities and introduce innovations that help our mutual customers maximize delivery of high-value enterprise AI solutions with Azure.”
Still, there’s reason to believe that C3 investors are overreacting to the news.
That’s because the California-based company is not new to working with MSFT. It has done so since before the pandemic. But did that help it achieve profitability? Not so far.
C3.ai is expected to remain a cash incinerator in the year ahead – and we don’t know how the strategic alliance it announced this morning changes that status quo since the management made no projections about the revenue this deal may be able to generate in the coming quarters.
Put together, these concerns should make investors question the ability of C3.ai stock to sustain today’s gains over the long term.
C3 topped experts’ forecast in its fiscal Q1
C3.ai and Microsoft have been delivering AI-enabled tools to notable clients like Shell and Dow Inc. since 2018.
Many believe that this New York-listed firm could prove to be a long-term beneficiary of artificial intelligence that Statista forecasts will grow at a compound annualized rate of more than 28% through 2030.
Still, C3 lost 5 cents on a per-share basis in its latest reported quarter even though revenue jumped 42.2% on a year-over-year basis to $87.21 million.
Analysts had called for a wider 13 cents per share loss on $87.12 million in revenue, though.
That’s why C3.ai stock has been in an uptrend ever since it posted its Q1 release.
C3.ai stock could crash back to $19
C3.ai remains a risky investment despite beating expectations in the first quarter and announcing a strategic alliance with Microsoft today as its subscription growth has been losing steam.
That suggests the artificial intelligence company is wrestling with expanding its customer base and converting its pilot programs into long-term contracts.
In September, C3 issued disappointing guidance for the full year as well. It expects its revenue to fall between $370 million and $395 million in fiscal 2025. Experts, in comparison, had called for $384 million.
That’s why analysts at Deutsche Bank lowered their price target on C3.ai stock at the time to $19 warning of about a 40% downside from here.
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