Can Government Contracts Reverse C3.ai’s Stock Slide?

C3.ai finds itself at a critical juncture. While its shares recently touched a 52-week low, the enterprise artificial intelligence software provider has simultaneously announced a series of major U.S. federal contracts and delivered quarterly earnings that surpassed analyst forecasts. This divergence presents a central question for investors: is government business the catalyst needed to halt the stock's downward trajectory?

The company's financial report for the second quarter of fiscal 2026, covering the period ending October 31, 2025, revealed contrasting signals. Revenue of $75.1 million met expectations. However, the non-GAAP loss per share of $0.25 was notably better than the consensus estimate of a $0.33 loss. A significant 93% of total revenue, amounting to $70.2 million, came from subscription services, highlighting a stable, recurring income base.

Other key metrics from the quarter include:
* Total Bookings: $86 million, a 49% increase from the prior quarter.
* Federal/Defense/Aerospace Bookings: Surged 89% year-over-year.
* Cash and Cash Equivalents: The company maintains a strong balance sheet with $675 million in cash and short-term investments.
* Stock Price: Shares hit a 52-week low of $12.56 on January 20, 2026.

A Surge in Federal Business

A cluster of significant federal agreements in early December has become a focal point for the investment thesis. The momentum began on December 4 when the U.S. Department of Health and Human Services selected C3.ai to develop a unified data foundation for the NIH and CMS, utilizing its C3 Agentic AI Platform.

This was followed on December 9 by an award from a U.S. Army program. The contract involves implementing AI-driven logistics functions to enhance forecasting for parts, fuel, and ammunition in contested operational environments. Crucially, on December 11, C3.ai received FedRAMP authorization, a mandatory security certification that permits the use of its platform for sensitive federal government applications.

Should investors sell immediately? Or is it worth buying C3.ai?

Management Outlook and Market Skepticism

Company leadership points to a broader industry shift from experimental AI projects to more comprehensive enterprise implementations. For the current third fiscal quarter of 2026, C3.ai provided revenue guidance in the range of $72 million to $80 million. Its full-year fiscal 2026 revenue forecast stands between $289.5 million and $309.5 million. The next quarterly results are anticipated in late February 2026.

Despite the positive contract news and earnings beat, challenges remain evident. Year-over-year revenue has declined by approximately 20%, and the stock's significant depreciation, culminating in the 52-week low, suggests the market remains unconvinced of a near-term operational turnaround.

The Path Forward: Conversion is Key

The FedRAMP authorization and new contracts undoubtedly strengthen C3.ai's foothold in the public sector and increase the potential for future federal revenue. Yet, the persistent top-line decline indicates that recovery is not yet reflected in the financial statements or share price. The critical factor is the speed and scale at which these government bookings convert into recognizable, recurring revenue.

Consequently, the Q3 results expected in late February will be highly instructive. Investors will scrutinize whether revenue lands within the projected $72–$80 million range and, more importantly, for clear signs that federal agreements are translating into sustained sales growth. Such progress would be a strong indicator that stabilization is underway.