C3.ai's Federal Momentum Builds: Can Government Demand Drive Growth?

C3.ai, Inc. AI reported a difficult third-quarter fiscal 2026, with management acknowledging that results were “clearly inadequate and well below our objectives” after the company failed to close business as planned, particularly in North America and Europe. Despite the challenges in the quarter, one segment of the business showed clear momentum: the company’s federal, defense and aerospace operations.

During the quarter, bookings across federal, defense and aerospace customers increased 134% year over year and accounted for 55% of total bookings. Management described the federal opportunity as “increasingly large and important,” noting accelerating demand for secure commercial off-the-shelf enterprise-scale AI platforms designed to support mission-critical operations.

Several government engagements announced during the period illustrate this demand. The U.S. Department of Agriculture selected C3.ai to deploy an enterprise-scale AI solution intended to modernize the department’s intergovernmental and public engagement operations by unifying its data environment and automating how large volumes of information are analyzed and processed. The U.S. Department of Energy also selected the company to centralize and unify data for the headquarters office of management, creating an AI-enabled decision platform designed to strengthen compliance oversight, improve real-time visibility and enhance operational efficiency.

Demand for these solutions is also expanding beyond U.S. government agencies. During the quarter, the NATO Communications and Information Agency selected C3.ai to support logistics planning and operations across its 32 member states. Management also noted adoption among allied defense organizations, including Japan’s Ministry of Defense and the United Kingdom’s Royal Navy.

As organizations across government and defense increasingly seek enterprise AI platforms capable of supporting mission-critical operations, management indicated that demand for secure commercial off-the-shelf enterprise-scale AI systems is accelerating. While overall results in the quarter reflected execution challenges, management described the federal opportunity as “increasingly large and important,” highlighting growing engagement with government and defense institutions.

AI’s Price Performance, Valuation & Estimates

Shares of C3.ai have declined 40.1% in the past three months compared with the industry’s fall of 18%. In the same time frame, other industry players like TaskUs, Inc. TASK, Leidos Holdings, Inc. LDOS and ServiceNow, Inc. NOW have lost 7.6%, 4.8% and 33.3%, respectively.

AI Three-Month Price Performance

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From a valuation standpoint, AI trades at a forward price-to-sales ratio of 4.51, significantly below the industry’s average of 13.40. Then again, other industry players, such as TaskUs, ServiceNow and Leidos Holdings, have P/S ratios of 0.79, 7.23 and 1.24, respectively.

AI’s P/S Ratio (Forward 12-Month) vs. Industry

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The Zacks Consensus Estimate for C3.ai’s fiscal 2026 loss per share has widened in the past 30 days.

EPS Trend of AI Stock

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The company is likely to report dismal earnings, with projections indicating a plunge of 229.3% year over year in fiscal 2026. Conversely, industry players like ServiceNow and Leidos Holdings are likely to witness growth of 17.7% and 3.1%, respectively, in 2026 earnings. Meanwhile, TaskUs' 2026 earnings are expected to decline 3.1% year over year.

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.