C3.ai stock rallies by earnings report

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C3.ai

Shares rose on Friday after the artificial intelligence software maker posted better-than-expected earnings.

Investor interest in C3.ai has surged over the past few weeks as the market looks for ways to capitalize on the emerging artificial intelligence trend.

Developed by Siebel Systems founder Thomas Siebel, C3.ai provides AI applications for large enterprises and government agencies. The company recently announced C3 Generative AI for Enterprise Search, a tool that incorporates technology from ChatGPT developer Open AI. The new search tool will be integrated into the company’s applications starting this spring.

In conversation with Barrons, Siebel said he sees his company as an aggregator of AI technology rather than a primary innovator. The CEO sees

Microsoft

and Open AI, Google and

IBM

as a key technology developer. “We just take whoever has the hottest technology and leverage that, like we do with encryption and machine learning services,” he says.

According to Siebel, the company’s secret recipe is the “orchestration layer,” which ties applications and services from different vendors together into a coherent whole.

According to Siebel, C3.ai is enthusiastic about its new search tool, which uses a Google-style search box interface to access content from enterprise applications that is often more difficult to master. The company is integrating the new search functionality into all C3.ai applications, but Siebel notes that the search functionality also works with third-party apps. The company could make the tool available to companies that don’t run C3.ai applications, he says, but admits “we haven’t figured it out yet.”

For the fiscal third quarter ended Jan. 31, C3.ai (ticker: AI) reported revenue of $66.7 million, down 4% year over year but ahead of the company’s forecast Company’s $63-$65 million and above street consensus forecast is $64.3 million. On an adjusted basis, the company posted an operating loss of $15 million, less than the guidance loss range of $25 million to $29 million.

Shares of C3.ai rose 29% to $27.52 as of Friday afternoon.

The company said it has successfully transitioned most customers to a subscription-based business mode. Subscription revenue for the quarter was $57 million, or 85% of total revenue. Non-GAAP gross margin was 76%. The remaining performance obligations were $403.2 million.

“We are seeing tailwinds from improved business confidence and increased interest in applying C3 AI solutions to address a growing range of applications across a variety of industries,” Siebel said in a previous statement. “General business sentiment appears to be improving. This is a dramatic change from what we saw in mid-2022.”

The company said it remains on track to be cash positive and non-GAAP profitable by the end of fiscal 2024. Siebel says the company’s high gross margins — in the 78% to 80% range — suggest a clear path to profitability as sales increase. The company spends a lower percentage on sales, marketing, and R&D. The company isn’t shedding and hiring, unlike other tech companies, he adds.

For the fiscal fourth quarter, C3.ai is forecasting revenue of between $70 million and $72 million, slightly ahead of Wall Street’s $69.9 million, with a non-GAAP operating loss of $24 million to $28 million .

For the full year, the company now expects revenue of between $264 million and $266 million and a non-GAAP operating loss of between $69 million and $73 million. Previous projections called for sales of $255-$270 million and a loss of $90-$98 million.

As for the recent explosion of interest in AI software, Siebel says the story is just beginning: “We’re in the first half of the first inning and the first guy’s batting.”

Write to Eric J. Savitz at eric.savitz@barrons.com