By Medha Singh
(Reuters) -Shares of C3.ai Inc dropped nearly 20% in early trade on Thursday after the AI software maker’s quarterly revenue forecast missed estimates, dampening some of Wall Street’s recent euphoria around small cap AI-linked stocks.
Most other small-cap artificial intelligence (AI) related stocks also fell, with analytics firm BigBear.ai, conversation intelligence firm SoundHound AI and Thailand’s security firm Guardforce AI down between 1.8% and 8.4%.
C3.ai, one of the top beneficiaries of the AI boom sparked by the viral success of ChatGPT, has seen its market value more than triple in 2023.
A jaw-dropping forecast last week by Nvidia, the world’s most valuable listed semiconductor company, fueled C3.ai’s rally further, sending its shares to a near one-and-a-half-year high on Tuesday.
The midpoint of C3.ai’s full-year revenue forecast was $307.50 million, below Wall Street expectations of $317.1 million, according to Refinitiv data.
The Redwood City, California-based company is experiencing a slow down in revenue as a result of its turnaround to a consumption-based pricing model, from a subscription business.
The company, however, said it had received bookings from diverse industries, benefiting from the strong AI software demand and remained on track to post a profit by the end of April 2024.
“We are encouraged by the positive commentary and signs of early traction on C3’s large AI market opportunity,” Morgan Stanley analysts said in a note.
However, they “continue to look for a signal that the existing subscription base remains stable, new customer acquisition converts into consumption revenue, and the path to profitability does not get pushed out further.”
At least six out of 12 brokerages covering the stock raised their price targets on the company, lifting the median Wall Street target to $27, more than double from March 1, while average rating was “hold,” Refintiv data showed.
“We would like to see some of (the) underlying growth drivers to translate to higher levels of revenue growth to get more constructive on the stock,” Piper Sandler analyst Arvind Ramnani said.
The stock was trading at 11 to 14 times its 2024 sales estimates, placing it among the most expensive software assets, Cannacord Genuity said.
The stock’s stellar year-to-date gains has also attracted bearish investors, with short sellers on track to make $218 million, according to Ortex data.
About 29.7% of C3.ai’s free float is shorted.
C3.ai attracted the third-highest retail inflows in the past week, according to J.P.Morgan, indicating its continued popularity.
(Reporting by Medha Singh in Bengaluru; additional reporting by Vansh Agarwal; Editing by Rashmi Aich)
