C3.ai's IPD Pipeline Expands: Can Conversions Ignite Revenue Growth?

C3.ai, Inc. AI spotlighted the growing importance of its Initial Production Deployment (IPD) model in the first quarter of fiscal 2026, framing it as a crucial engine for scaling enterprise adoption and expanding recurring revenues. The company closed 28 new IPDs during the fiscal first quarter, bringing its total to 374.

The IPD framework, designed as a 3-6 month entry point for clients, enables organizations to trial the C3 Agentic AI Platform and evaluate real-world performance before committing to enterprise-scale deployment. Management emphasized that subscription and prioritized engineering services (PES) accounted for 98% of total sales in the fiscal first quarter, highlighting the importance of an IPD base for anchoring C3.ai’s top line.

While this model builds long-term stickiness, it also comes with transitional costs. In the fiscal first quarter, the company’s non-GAAP gross margin slipped to 52%, down from 59% a year ago, reflecting higher upfront support and implementation costs tied to the growing IPD mix. Management expects these margins to remain under pressure in the near term as more customers enter the pilot phase before converting to full-scale subscriptions.

Despite near-term headwinds, C3.ai’s underlying momentum is reflected in the breadth and depth of its customer engagements. Expanded partnerships with Nucor, HII and Qemetica illustrate how the C3 Agentic AI Platform is becoming embedded in mission-critical operations — from optimizing industrial supply chains and manufacturing efficiency to strengthening defense readiness. Founder and Executive Chairman Tom Siebel described the IPD model as a key growth catalyst, accelerating enterprise adoption through collaboration with leading cloud providers such as Microsoft Azure, AWS and Google Cloud, which collectively accounted for roughly 90% of the fiscal first quarter’s deal activity.

Looking ahead, the conversion rate from IPDs to recurring subscriptions will likely define C3.ai’s next growth phase. The company guided second-quarter fiscal 2026 revenues to be between $72 million and $80 million, signaling a modest rebound. 

With more than 260 active IPDs across industries and growing traction among system integrators through its Strategic Integrator Program, C3.ai’s focus now turns to transforming its pilot momentum into durable enterprise contracts. If conversions accelerate, the IPD pipeline could evolve from a near-term drag on margins into the company’s strong lever for sustainable growth.

AI’s Price Performance, Valuation & Estimates

Shares of C3.ai have declined 30.2% in the past three months compared with the industry’s fall of 4.4%. In the same time frame, other industry players like TaskUs, Inc. TASK and ServiceNow, Inc. NOW have declined 18.8% and 5.7%, respectively, while Leidos Holdings, Inc. LDOS has gained 16.3%.

AI Three-Month Price Performance

From a valuation standpoint, AI trades at a forward price-to-sales ratio of 8.28X, significantly below the industry’s average of 17.05X. Then again, other industry players, such as TaskUs, ServiceNow and Leidos Holdings, have P/S ratios of 0.97, 12.61 and 1.37, respectively.

The Zacks Consensus Estimate for C3.ai’s fiscal 2026 loss per share has widened in the past 60 days.

The company is likely to report dismal earnings, with projections indicating a plunge of 224.4% year over year in fiscal 2026. Conversely, industry players like TaskUs, ServiceNow and Leidos Holdings are likely to witness growth of 10%, 17.9% and 4.4%, respectively, in 2026 earnings.

AI stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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