Implementation Game

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Stock Pick: C3.AI Inc. (AI-US, $4.6B MCAP)

In today’s fast-evolving tech arena, where buzzwords like “machine learning” and “digital transformation” are thrown around like confetti, C3 is carving out a niche that’s as unpredictable as it is revolutionary.

Far from being a smooth ride, the company’s journey has been punctuated by explosive revenue growth, high-profile alliances, and insider moves that leave even the savviest investors scratching their heads.

While the market chases the next big thing in cloud computing and data analytics, C3 is boldly staking its claim as the original enterprise AI powerhouse—and its story is one of both triumph and turbulence.

• Why now?👉 From Experimentation to Implementation

• Overview 👉 What Does C3 Do?

• Product Suite 👉 Platform+ Apps

• How Do They Make Money? 👉 Subscription + Professional Services

• Key Relationships 👉 Microsoft, Federal Agencies, & Industry Collaborations

• Growth Drivers 👉 Harnessing the Momentum of Enterprise AI

• By The Numbers 👉 Key Metrics

• Risks 👉 Potential Pitfalls

Why now?👉 From Experimentation to Implementation

The current moment for enterprise AI is nothing short of a tsunami—a colossal surge driven by an urgent need for businesses to modernize.

Across sectors such as energy, manufacturing, financial services, and healthcare, companies face unprecedented pressure to upgrade legacy systems as the global shift towards digital transformation creates a fertile ground for AI solutions that promise enhanced efficiency, faster decision-making, and significant cost savings.

With many enterprises moving beyond the experimental phase of AI pilots, what were once tentative trials are rapidly evolving into full-scale deployments. This market maturation not only bolsters C3’s subscription revenue—which now makes up roughly 86% of its total income—but also signals that AI is transitioning from a niche experiment into a mission-critical initiative.

Overview 👉 What Does C3 Do?

The industry has built out a lot of AI capabilities, but the focus now shifts to integration. This is where C3 comes in.

C3 is an enterprise artificial intelligence software company that provides a comprehensive platform for building, deploying, and operating large-scale AI applications. At the heart of its offerings is the C3 AI Platform—an end-to-end development and runtime environment that integrates data from various sources, applies sophisticated machine learning models, and delivers actionable insights. This platform empowers businesses to rapidly develop custom AI solutions tailored to their unique operational needs, ensuring seamless integration into existing systems and driving digital transformation.

In addition to its platform, C3 offers a suite of industry-specific, pre-built SaaS applications designed to address critical challenges across sectors such as manufacturing, energy, financial services, and healthcare. These applications range from predictive maintenance and supply chain optimization to fraud detection and energy management, enabling organizations to enhance efficiency, reduce costs, and improve decision-making processes.

Product Suite 👉 Platform + Apps

C3 offers a comprehensive suite of products that allow organizations to transform raw data into actionable insights:

• C3 AI Application Platform – a end-to-end platform-as-a-service for designing and running custom enterprise AI applications at scale​. It uses a model-driven architecture that abstracts complexity, enabling developers to build AI apps via conceptual models instead of extensive coding​

• Pre-built AI Applications – a growing portfolio of ready-to-use AI applications (cross-industry and industry-specific) for use cases like predictive maintenance, fraud detection, inventory optimization, customer churn, and more​. These can be deployed in as little as 1–6 months and are customizable to client needs​.

• C3 AI Ex Machina – a no-code analytics tool that allows business analysts (non-programmers) to access data and build or train AI models via a simple interface. This broadens AI adoption within enterprises by empowering users without data science training.

• C3 AI CRM and Data Vision – C3 AI has also introduced industry-specific CRM modules (leveraging AI for sales, marketing, and customer service)​ and an AI-driven data visualization product (Data Vision) for advanced network and temporal analytics​. These offerings embed AI into business workflows in sectors such as financial services, healthcare, telecom, oil & gas, manufacturing, utilities, aerospace, automotive, public sector, and defense.

By offering these layered solutions, C3 equips businesses with the tools to not only navigate the digital revolution but to thrive within it.

How Do They Make Money? 👉 Subscription + Professional Services

C3’s business model is anchored in two core segments: subscription revenue and professional services.

Subscription Revenue: Making up approximately 86% of total revenue, this segment is the recurring engine that fuels the company’s growth. Clients subscribe to its cloud-based AI solutions, ensuring a steady, predictable income stream while continuously benefiting from software updates and technical support.

Professional Services: This segment encompasses customized consulting, training, and implementation services. Although it represents a smaller portion of the revenue, these services are vital for helping clients tailor and integrate C3’s solutions into their complex operational environments.

Together, these segments illustrate a strategic shift from one-off software sales to a sustainable, recurring revenue model—albeit one that comes with its own set of scaling challenges.

Key Relationships 👉 Microsoft, Federal Agencies, & Industry Collaborations

C3’s ecosystem is built on powerful partnerships that extend its influence far beyond its core offerings:

Microsoft Alliance: On September 2024, C3 AI signed a global strategic partnership with Microsoft Azure through 2030 aimed at accelerating enterprise AI adoption​. Under this deal, C3 AI’s entire portfolio (including its generative AI solutions) is now available directly through Azure’s marketplace and price list, and Microsoft’s worldwide sales force is incentivized to sell C3 AI. All Azure sales reps can sell C3’s products as if they were Microsoft’s, earning commissions and quota credit for Azure-C3 AI deals​.

Importantly, C3 AI products can be purchased on Microsoft’s paper (via standard MSFT enterprise licensing agreements), drastically shortening sales cycles by tapping into Microsoft’s existing enterprise contracts​. This is a game-changing lever for C3: effectively, its sales reach expanded from a direct team of ~100 salespeople to potentially 10,000+ Microsoft Azure sales reps globally pushing C3 AI offerings​.

Federal & Defense Contracts: C3’s technology is trusted by several U.S. federal agencies, including those in the defense and intelligence sectors. These contracts not only validate the company’s capabilities but also ensure a stable source of high-value revenue that can cushion against market volatility.

Industry Collaborations: C3 has forged partnerships with key players in energy, manufacturing, and other industries. These collaborations drive real-world applications of its technology, enhancing operational efficiencies and driving innovation.

Through strategic partnerships—most notably with Microsoft, which positions C3 as the preferred AI application provider on Azure— C3 expands its market reach and accelerates the shift of AI projects from pilot phases to full-scale commercial deployments.

Growth Drivers 👉 Harnessing the Momentum of Enterprise AI

At the heart of C3’s narrative is its ability to ride the colossal wave of enterprise AI adoption. The company is strategically positioned to benefit from several key drivers:

• Microsoft-Enabled Expansion: By embedding its solutions into the Azure ecosystem, C3 is set to leverage a massive sales force and accelerate the move from pilot projects to widespread, scalable deployments.

• Innovative Product Pipeline: With the launch of its C3 Generative AI suite, the company is addressing emerging market needs that range from automated document creation to advanced predictive analytics. These innovations not only enhance its product portfolio but also set the stage for future growth.

• Expanding Market Reach: As enterprises mature in their AI journeys, the market is transitioning from experimentation to production. This shift is expected to drive further growth in subscription revenue, a critical factor in the company’s long-term scalability.

• Improved Operational Metrics: While profitability remains a challenge, recent quarters have shown improvements in adjusted net loss—narrowing to just 6 cents per share. This indicates progress toward a more sustainable operating model, even as the company continues to invest heavily in growth.

By The Numbers 👉 Key Metrics

After a growth slowdown in 2022–2023 due to the business model transition, C3 AI’s financial performance is showing reacceleration. In the fiscal year ended April 2023, C3 AI’s total revenue was $266.8 million, up only 5.6% from the prior year​.

However, the tides are changing…

Q1 2025 revenue reached $87.2 million, a 21% year-over-year increase​. Q2 accelerated further to $94.3 million, up 29% YoY​. This marked the company’s 7th consecutive quarter of accelerating revenue growth, a trend management attributes to the successful ramp of the consumption-based model and robust demand for AI solutions.

C3 AI is not yet profitable, but margins are improving. Gross margins are strong for a software company: in Q2 FY25, GAAP gross profit was $57.8M (~61% gross margin) and non-GAAP gross margin was 70%​

Gross margin has room to increase as subscription revenue (which carries high margins) becomes an even larger mix and the reliance on lower-margin professional services diminishes. Operating expenses remain high, as C3 continues to invest heavily in sales & marketing and R&D to drive growth. In FY2024, the company incurred a net loss of approximately $280 million on revenue of ~$310 million​, reflecting the “upside-down” profile of a growth-stage SaaS business where costs outpace revenue.

That said, there are signs of operating leverage: in Q1 FY25, C3 AI’s non-GAAP operating loss was $16.6M, significantly better than management’s expected $22–30M loss​. By Q2 FY25, the non-GAAP net loss per share was only $(0.06) – nearly breakeven on an adjusted basis – compared to a GAAP net loss of $(0.52) per share (which includes large stock-based compensation)​

The narrowing losses indicate cost discipline and revenue scale beginning to absorb fixed costs. C3’s CEO has emphasized a focus on achieving sustainable profitability, though the company’s guidance still calls for a full-year FY25 operating loss (non-GAAP) of $105–$135M​

However, C3’s sales & marketing and R&D spend have historically outpaced its revenue, so reaching break-even will require continued robust growth or expense moderation.

When we look at valuation, C3 is trading at 7x Blended forward EV/Revenue. Palantir? 70x. Ten times more expensive. While Palantir is trailblazing a path, you are paying up way too much. C3 can fit into specific niches and there is plenty of room for both to co-exist.

Risks 👉 Potential Pitfalls

Partner Dependence (Microsoft, etc.): While the Microsoft Azure partnership is a key growth lever, it also introduces counterparty risk. C3 AI is now highly dependent on Microsoft’s sales execution and continued goodwill. If the Azure alliance does not yield expected results (for instance, if Azure sales teams don’t actually prioritize C3’s products), C3’s growth could disappoint.

Sustained Losses: Despite impressive revenue growth, the company continues to operate at a net loss. The challenge of turning top-line momentum into bottom-line profitability remains a critical concern.

Subscription Revenue Growth: Analysts have expressed concerns about stagnating subscription growth. If the pace of new sign-ups or renewals falters, the recurring revenue engine could lose steam.

Insider Stock Sales: CEO Thomas Siebel’s recent plans to sell a significant portion of his shares have added an element of unpredictability. Such insider moves can sometimes signal a lack of confidence in future performance.

Competitive Pressure: The enterprise AI market is highly competitive, with peers like Palantir, Snowflake, and Datadog also vying for market share. These competitors not only boast stronger profitability metrics but also have broader market penetration.

Wrapping Up…

Look… if you want a squeaky clean story this is not the stock for you. They have had several hiccups along the way but the bet here is on one key trend: implementation.

We’ve built out incredible capabilities in AI over the last several years but there is still not much of it being widespread within organizations.

Change happens slowly, then all at once.

If C3 can position itself properly into the workflows of large organizations, it has a massive market to win.

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The GRIT Alpha Team

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