C3.ai crashes due to disappointing sales outlook after recovering from AI hype

(Bloomberg) — C3.ai Inc. slumped 20% in extended trading after the company issued a revenue outlook for the fiscal year that fell short of analysts’ estimates, raising concerns that the artificial intelligence software company could fall short of the buzz Doesn’t do justice to investors The share price has more than tripled this year.

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Revenue will increase 11% to 20% to a median of $307.5 million for the fiscal year ending April 2024, the Redwood City, Calif.-based company said in a statement Wednesday. According to data from Bloomberg, analysts on average estimated the value at $317 million. The company forecast an adjusted loss of $50 million to $75 million for the fiscal year, which is in line with estimates.

Shares fell to a low of $31.10 in extended trading after closing at $40.01 in New York. As investors have developed an insatiable appetite for AI, the company’s stock is up 258% this year, making it the best-performing stock in the S&P North American Expanded Technology Software Index. C3.ai is alone since Nvidia Corp.’s blockbuster results. Up 45% last week, boosting a basket of AI-related stocks.

Still, many are betting against the company. According to data from S3 Partners, as of May 24, short interest was about 29% of publicly available shares. Activist investors accuse the company of tracking trends and employing poor accounting practices. Former employees said C3.ai has a history of exaggerating the readiness of its technology, even as founder and CEO Tom Siebel has defended his company’s products and practices.

“The C3 AI Platform is increasingly recognized as the gold standard for enterprise AI,” Siebel said in the statement. “We have more than 40 AI applications for manufacturing companies that enable the market to quickly create value.”

Much of the investor interest stems from C3.ai’s new generative artificial intelligence “product suite,” which was unveiled in March. The company said it entered into AI application agreements with Georgia-Pacific, Flint Hills Resources and the US Department of Defense’s Missile Defense Agency this quarter. The company said it had three customers when it released its preliminary earnings results earlier this month.

Read more: C3.ai Criticized for Product Delays, Tom Siebel’s Micromanagement

“We’re a little shocked by the response we’ve had to C3’s generative AI,” Siebel said during a conference call after the results were released. The company’s products and relationships should help it capitalize on new AI interest, DA Davidson analyst Gil Luria wrote in a note.

Not all analysts are convinced that the new technology will be game-changing for C3.ai.

“The results confirm that C3.ai likely has a very small revenue share of generative AI or large language models,” said Mandeep Singh of Bloomberg Intelligence of the three revenue-limited pilots. “C3 is still heavily focused on the energy vertical and I don’t think it will expand across industries given competition from hyperscale cloud providers and other large application software vendors.”

C3.ai has struggled to attract new large customers and has recently switched to consumable pricing — paying for software based on usage rather than a flat-rate subscription — to woo companies reluctant to commit to large contracts. The company said it signed 43 deals during the quarter, including 19 pilots, and announced that the average sales cycle is shortening to 3.7 months from 5 months in the same period last year.

Chief Financial Officer Juho Parkkinen said the company still expects to be profitable on an adjusted basis by the fourth quarter of 2024. He added that C3.ai expects to “invest aggressively in generative AI initiatives in the first half of the year.”

(Updates with comments from executives starting in sixth paragraph.)

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