C3.ai, a favourite among retail investors, experienced an 8% decline on Thursday. This drop was triggered by concerns about higher-than-anticipated annual losses, which raised worries about the expenses associated with increased investments in artificial intelligence.
On Wednesday, the AI software company mentioned that the escalating expenditure on pilot programs with potential clients would negatively impact its short-term profitability and cash flow. This comes after the company had previously tempered investor expectations of turning a profit with a more conservative outlook in September.
C3.ai is facing prolonged sales cycles as customers establish new governance functions for approving applications before use. This development raises concerns about AI spending, which has been a positive aspect in a generally challenging year for technology firms.
With the increased expenditure on pilot programs, the company’s profitability outlook is further strained.
Despite a more than 160% surge in the stock this year, propelled by heightened interest in AI-related stocks following the successful launch of the ChatGPT chatbot late last year, C3.ai is now facing challenges.
It remains a favourite among retail traders, consistently ranking among the top ten trending stocks on the amateur investor-focused platform Stocktwits.
Despite its popularity, the company has come under scrutiny from short sellers this year, with a short interest representing 31.7% of its outstanding shares, as indicated by data from S3 Partners.
Kerrisdale Capital in April accused the company of “poor customer traction, failing sales partnerships and financial pressures”.
Brokerage D.A. Davidson & Co cut its price target on the stock to $28 from $30 “given the deterioration of profitability”.
The stock holds a “hold” rating, with a median price target of $28 from 14 analysts, as reported by LSEG.
C3.ai revised its annual adjusted operating loss projection to be in the range of $115 million to $135 million, compared to the earlier estimate of $70 million to $100 million, causing concern among investors.
Furthermore, its second-quarter revenue of $73.2 million for the period ending Oct. 31 fell short of LSEG’s estimates of $74.3 million.
