Government orders surged by 89%, but failed to hide the weakness of the main business. C3.ai's (AI.US) stock price experienced a "rollercoaster" after hours.

Enterprise artificial intelligence software company C3.ai (AI.US) announced better-than-expected performance for the second quarter of the 2026 fiscal year on Wednesday, mainly driven by a significant increase in demand from federal government agencies and a surge in partner-driven transaction activity. However, market concerns about the company's continued revenue pressure and operational challenges led to sharp fluctuations in its stock price after hours. According to the financial report, the company reported an adjusted loss of $0.25 per share, beating analysts' expectations of a loss of $0.33 per share. Revenue reached $75.1 million, slightly higher than the market's general expectation of $74.93 million, with a 7% increase quarter-over-quarter, but a 20% decrease year-over-year. The core business of subscription revenue declined by 13% year-over-year to $70.2 million, accounting for 93% of total revenue, highlighting the difficulty of stabilizing its main business. The GAAP gross margin was 40%, while the non-GAAP gross margin reached 54%. As of the end of the quarter, the company had a balance of $675 million in cash and securities. Currently, C3.ai is heavily focusing on federal contracts, with nearly half of its orders coming from this area. CEO Stephen Ehikian pointed out that the "outstanding performance" of federal government customers and the increase in large transaction activity provided solid support for growth, indicating that the federal market is an "important growth driver" for the company. This suggests that the company is shifting its focus to areas with significant growth potential. "With the strong performance in federal business, we achieved a solid quarterly performance," Ehikian said, expressing optimism about using government contracts to offset weak performance in commercial business. Despite the disruption caused by the government shutdown, federal government orders in this quarter still surged by 89% year-on-year, accounting for 45% of total orders. The company signed new contracts or expanded agreements with agencies such as the U.S. Department of Health and Human Services, the U.S. Army, the Naval Air Warfare Center, and the U.S. intelligence community. Additionally, the partner-driven model has become a focus, especially through collaborations with tech giants like Microsoft Corporation (MSFT.US) and Amazon.com, Inc. (AMZN.US), where partners significantly contribute to sales channels. This strategy has significantly expanded sales channels, with a 146% growth in collaboration with Microsoft Corporation and a 172% growth in collaboration with AWS. Overall order volume increased by 49% quarter-over-quarter, with 17 transactions over $1 million and 6 large orders exceeding $5 million. Despite launching several innovative strategies, C3.ai's financial challenges cannot be ignored. The company's annual performance guidance remains basically unchanged, without a clear signal that the downward trend in subscription revenue is about to reverse. The financial report emphasized the need for the company to improve operational efficiency in new contracts to improve overall financial situation. For the 2026 fiscal year, C3.ai expects annual revenue to be between $289.5 million and $309.5 million, with analysts expecting $299.5 million. For the current quarter, the company's revenue guidance is between $72 million and $80 million, while the market's expectation is $75.6 million. Ehikian stated that the company has set "clear operational goals" for each business unit and holds a "clearly planned path" for returning to growth, achieving positive cash flow, and non-GAAP profitability. After the financial report was released, the company's stock price initially fell by over 6% after hours, then rose by over 4%, but quickly gave back the gains, with the stock falling by over 2% at the time of writing.