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 22% in premarket trading on Thursday to $31.31 after the AI software company gave a full-year outlook that narrowly missed Wall Street expectations. However, that would still leave the stock having almost tripled in value since the start of the year.
AI stocks were propelled higher after
Nvidia
(NVDA) said last month that it was on track to massively surpass analysts’ expectations for the current quarter’s revenue. However, using the chip maker’s results as a yardstick for demand 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 the market demand for their software.
C3.ai’s biggest challenge at the moment is its shift to a consumption-based pricing model, from a subscription-based model, a bet it can grow quicker 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.
J.P. Morgan kept a Neutral rating on the stock but raised their target price to $15 from $13 previously.
In C3.ai’s case, volatile swings in its share price are likely to be exacerbated by the 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.
Analysts at D.A. Davidson, led by Gil Luria, said a key point from the report was that C3.ai is diversifying its client base. Significant short-seller attention has been paid to the company’s relationship with
Baker Hughes
(BKR), the oil-services firm. C3.ai said Wednesday an investigation found short-seller allegations weren’t supported by the facts.
“We believe [C3.ai] shares are more properly reflecting the prospects of acceleration for the back half of the year, and are comfortable with our $30 price target,” Luria wrote in a research note. D.A. Davidson lowered its rating on the stock to Neutral from Buy.
Write to Adam Clark at adam.clark@barrons.com
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