C3.ai Shifts to IPD-Led Sales for Durable Growth Amid Persistent Losses

What happened

C3.ai is implementing a sales strategy reset to focus on IPD-led deployments, as reported in a recent Zacks article, aiming to use smaller proofs of value for disciplined conversions and more durable growth. This move occurs against a backdrop of chronic unprofitability, with the DeepValue master report noting a net loss of $105 million in Q2 FY2026 and consistently negative free cash flow. The IPD-led approach is part of a broader sales reorganization that has been disruptive, potentially obscuring underlying demand but intended to enhance customer adoption through initial production deployments. However, the report highlights significant risks, including intense competition from hyperscalers, a fragile moat, and a lack of visible operating leverage despite 25% revenue growth in FY2025. While this shift may improve conversion rates, it does not immediately address core issues like cash burn and profitability, keeping the investment thesis highly speculative.

Implication

In the near term, this sales shift may increase bookings and initial production deployments, as evidenced by 174 such deployments in FY2025, but it risks extending sales cycles and adding costs if execution falters. Financially, the company's $675 million net cash balance offers downside protection, but annual losses around $280-290 million threaten to erode this buffer without clear path to profitability. Competitively, while partnerships with AWS and Google Cloud provide distribution channels, hyperscalers' native AI platforms could commoditize C3.ai's offerings and squeeze margins. Investors should closely monitor for evidence of operating leverage, such as revenue growth outpacing expenses and improving gross margins above 40%, before considering a stance change. Until then, the stock remains a speculative bet, with the DeepValue report recommending a 'WAIT' approach due to unresolved structural issues.

Thesis delta

The DeepValue report's thesis remains unchanged: C3.ai is a speculative, execution-dependent bet with no margin of safety, awaiting signs of operating leverage and sustainable cash flow. This sales reset aligns with management's strategy but does not materially alter the risk profile or address the persistent losses and competitive vulnerabilities highlighted in the report. Therefore, the investment stance should stay 'WAIT' until concrete improvements in profitability and moat durability are demonstrated.