Investors appear to be calling for a timeout on the artificial-intelligence frenzy.
C3.ai’s
stock drop suggests AI bears might finally be making themselves heard.
C3.ai
(ticker: AI) shares were down 19% in premarket trading on Thursday to $32.40 after the AI software company gave a full-year outlook that narrowly missed Wall Street’s expectations.
That drop, however, still leaves the stock at about three times higher than the $11 it was trading around in the beginning of the year. AI stocks broadly leapt higher last month after
Nvidia
(NVDA) said it was on track to surpass analysts’ expectations for the current quarter’s revenue.
Using Nvidia’s results as a yardstick for all AI-related companies will set up many investors for disappointment. Nvidia’s hardware has already found a key role in the AI ecosystem, while companies such as C3.ai are still seeking to establish themselves in the space.
Some analysts are hopeful C3.ai might have already found its niche with its suite of generative AI tools, announced earlier this year. “While it will be a bumpy road, we believe C3 has turned a corner and is ready to now capitalize on the $800 billion AI transformational opportunity over the next decade with use cases increasing across the board,” Wedbush’s Daniel Ives wrote in a Thursday research note. He raised his rating on shares to Outperform from Neutral, and his price target to $50 from $24.
Others see challenges. C3.ai’s biggest at the moment is its shift from a subscription-based pricing model to a consumption-based model, a bet it can grow faster as customers use more of its AI software.
“While we continue to assess the assumptions around the consumption-based pricing model and its implications to the total growth as well as the profitability profile of the business, we remain on the sidelines,” analysts at J.P. Morgan wrote in a research note on Thursday. They kept their Neutral rating on shares and raised their target price to $15 from $13.
Analysts at D.A. Davidson, led by Gil Luria, said a key point from C3.ai’s results was that the firm is diversifying its client base.
“We believe [C3.ai] shares are more properly reflecting the prospects of acceleration for the back half of the year,” Luria wrote. D.A. Davidson lowered its rating on the stock to Neutral from Buy and kept its price target at $30.
In C3.ai’s case, volatile swings in its share price are likely to be exacerbated by significant short-seller interest, or investors betting on a fall in the stock. Shares sold short represented 29% of the openly traded shares of the company as of mid-May.
Short-selling firm Kerrisdal Capital published a letter in April that alleged accounting irregulatories, citing a high percentage of unbilled receivables from a single customer, oil-services firm
Baker Hughes
(BKR). C3.ai said Wednesday an investigation found short-seller allegations weren’t supported by the facts.
Write to Adam Clark at adam.clark@barrons.com
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