C3.ai (AI) stock dropped 10.6% on Dec. 19 after KeyBanc downgraded its rating from “Hold” to “Sell.” The move was driven by valuation concerns, with the firm expressing doubts about the stock’s risk-reward profile.

KeyBanc’s analyst highlighted several challenges for the company, including concerns over overly optimistic revenue projections for fiscal years 2026 and 2027. Adding to the uncertainty, KeyBanc pointed out two significant risks. The potential non-renewal of its partnership with Baker Hughes (BKR) and the possibility that its recently expanded partnership with Microsoft (MSFT) may not deliver meaningful results. Both partnerships are crucial to C3.ai’s strategy, and any setbacks in these alliances could have significant implications for its growth trajectory.

C3.ai’s collaboration with Baker Hughes, established in 2019, has been a key element of its partner ecosystem. Baker Hughes is an exclusive reseller of C3.ai’s software in the oil and gas sector and a non-exclusive reseller in other industries. This agreement, last revised in January 2023, is set to expire in April 2025, with options for renewal.

Meanwhile, C3.ai announced an expanded partnership with Microsoft last month. This partnership will accelerate the deployment of enterprise artificial intelligence (AI) solutions on Microsoft Azure, with C3.ai positioned as the preferred AI application provider for Azure users and Microsoft as its go-to cloud provider.

Notably, these collaborations and the expansion of the partner ecosystem are a significant driver of C3.ai’s business. About 115 agreements in fiscal 2024 were closed through its partner network. Moreover, in its fiscal second quarter, it closed 62% of total agreements with and through its partner network. Thus, the potential loss of this partnership could deal a blow to the company’s growth prospects. Moreover, if these partnerships fail to yield the expected results or if key agreements are not renewed, C3.ai could face significant challenges.

With this background, let’s look at C3.ai stock to determine whether now is the time to buy, sell, or steer clear.

Is the Baker Hughes Concern Overblown?

C3.ai’s partnership with Baker Hughes has raised questions among investors, but the data suggests the concern might be overdone. Now, 5.5 years into its agreement with Baker Hughes, C3.ai has strategically lowered its reliance on this partnership.

In fiscal year 2023, Baker Hughes contributed 35% of C3.ai’s total revenue. By fiscal year 2024, this figure had dropped to 27%, and in the most recent quarter, Baker Hughes accounted for just 18% of the company’s revenue. This trend highlights C3.ai’s successful efforts to diversify its revenue streams. In fact, revenue from sources outside the Baker Hughes partnership grew an impressive 41% year-over-year in the second quarter of fiscal 2025.

C3.ai’s management has expressed confidence that the agreement will likely be renewed. Furthermore, they have downplayed any potential risks associated with a non-renewal, stating that it would not impact the company’s current guidance or outlook. Management’s remarks reflect the company’s progress in reducing dependency on Baker Hughes and creating a more balanced and resilient business model.

Factors Supporting C3.ai Stock

While C3.ai stock remains volatile, its top-line growth rate has consistently accelerated. In Q2, the company reported its seventh consecutive quarter of increasing revenue growth. Year-over-year revenue climbed sharply, from 11% in Q1 FY24 to 29% in Q2 FY25, reflecting a surge in demand for its AI-driven solutions.

Further, its revenue growth is exceeding expense growth, and management expects to maintain this positive trend, which will likely support profitability.

Notably, its collaborations with major partners have accelerated the adoption of C3.ai’s solutions. The company’s partner network continues to expand, including tech giants like Alphabet’s (GOOGL) Google Cloud, Amazon's (AMZN) AWS, and Microsoft. In Q2 alone, 62% of its agreements were closed with or through these partners. Notably, C3.ai closed 20 agreements with Google Cloud in Q2, a 180% year-over-year increase.

This growing network of partners, combined with the expanding use cases of C3.ai’s generative AI solutions across various industries, showcases the company’s broad market appeal and reinforces its growth potential.

The Bottom Line on AI Stock 

Wall Street analysts maintain a “Hold” consensus rating, taking a cautious stance on the stock due to valuation concerns, its reliance on the Baker Hughes partnership, and pressure on margins.   

However, C3.ai’s accelerating revenue growth rate, expanding partner ecosystem, strategic federal contracts, and traction in the public sector market point to a bright future for the company. Thus, the pullback could be a buying opportunity for long-term investors.