Why C3.ai Stock Dropped After Earnings Today

C3.ai (NYSE: AI) stock, which makes applications for artificial intelligence (AI), reported its fiscal second-quarter 2025 earnings last night and outperformed expectations, leading to a series of analyst price target hikes. Despite the good news and the positive reaction on Wall Street, investors are selling C3 stock, which as of 10:15 a.m. ET is down 4.2%.

C3 in Q2

C3.ai beat expectations on both top and bottom lines in the quarter ended Oct. 31, reporting $94.3 million in fiscal Q2 sales (Wall Street forecast $91 million), and losing $0.06 per share, rather than the expected loss of $0.16 per share.

So far, so good. But here's where the news turns bad. It seems C3's $0.06 loss that "beat" earnings was only a non-GAAP (adjusted) number, meaning it was not calculated according to generally accepted accounting principles (GAAP). C3's GAAP loss for the quarter was a massive $0.52 per share. That was nearly as bad as its loss of $0.59 per share one year ago, and worse than the company's $0.50-per-share loss last quarter.

The fact that C3 grew its revenue 29% year over year, but earnings improved little or not at all, suggests that the company's strong sales growth isn't necessarily putting it on any kind of path to profitability.

Is C3 stock a sell?

Worse, C3's growth may already be slowing.

Turning to guidance, management forecast sales growth of about 25% for both fiscal Q3 2025 ($98 million) and for the full fiscal year ($388 million). Management did not give GAAP guidance for earnings, but did say it expects non-GAAP losses to continue: $42 million in Q3 losses, and about $120 million lost for the year.

That's not a great short-term prognosis, and longer-term, analysts who follow C3 see this company continuing to lose money as far out as 2027 and beyond. (Forecasts only go out to 2027, and losses should be $1.68 per share that year.) With poor prospects like these, investors are probably right to sell C3.ai stock.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.