Artificial intelligence software developer C3.ai’s (NYSE:AI) stock was up more than 20% today in the pre-market session after the company announced that it received a five-year production contract from the U.S. Department of Defense worth $500 million.
The defense contract is huge new for Redwood City, California-based C3.ai, whose stock has plunged 73% this year. AI stock closed out yesterday at $32.09 a share. In the last month alone, AI stock has fallen 30%.
News of the lucrative defense contract is leading the company’s stock to reverse higher by a significant amount following months of mounting losses for shareholders.
What Happened With AI Stock
In a news release, C3.ai said that the $500 million contract paves the way for the adoption and use of its artificial intelligence products by the Defense Department. C3.ai’s software enables the military to undertake modeling and simulations that help it prepare for current and future security threats. The modelling can include everything from projected missile attacks on the U.S. to operational deployments of American troops in foreign countries.
Additionally, C3.ai said that the new contract could pave the way for its products to be used across all branches of the Defense Department — from the Army and Air Force to the newly created Space Command. “We are thrilled to have been selected for these important initiatives and look forward to expanding our work and finding new ways to better serve the U.S. federal government,” said C3.ai CEO Thomas M. Siebel.
Why It Matters
The defense contract is a big win for C3.ai in what has otherwise been a grim year for the company. The steep stock price depreciation has come after disappointing earnings and slowing growth at the software developer. The stock fell to an all-time low of $27.52 on Dec. 2 after the company reported fiscal second-quarter results that showed its net loss widened from $9.7 million to $23.6 million, or 23 cents per share.
Additionally, C3.ai reported that its operating expenses soared 120% year-over-year in the first half of fiscal 2021 year and ate up 157% of its total revenue. As a result, its net loss over six months increased six fold to $94 million from $15 million a year earlier. Plus, C3.ai has been criticized by analysts for having customer concentration issues. Until now, the company relied heavily on two customers — Baker Hughes (NASDAQ:BKR) Engie (OTCMKTS:ENGIY). When combined, these two accounted for nearly 40% of the company’s revenue.
The new contract with the Defense Department increases and diversifies C3.ai’s revenue stream, which is seen as a positive by investors.
What’s Next for C3.ai?
AI stock is going to get a much-needed lift today. However, today’s gains will only partially offset the losses it has incurred this year. And despite the defense contract win, C3.ai is not out of the woods yet.
Going forward, the company will have to secure many more contracts to diversify and grown its revenue, and eventually turn a profit.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.