C3.ai falls on worries AI investments will eat into profitability

Retail investor darling C3.ai sank about 8% on Thursday as its forecast for a bigger-than-expected annual loss sparked worries about the costs stemming from rising investments in artificial intelligence.

The AI-based software maker had said on Wednesday growing spending on pilot programs with potential customers will be a drag on its profitability and cash flow in the near term, after it had doused investor hopes of a profit with a sobering outlook in September.

C3.ai is also seeing sales cycles get extended as customers create new governance functions to approve applications before use, a potential concern for AI spending that has so far been a bright spot in an otherwise dour year for technology companies.


Coupled with the growing spending on pilot programs, it has added pressure on the company's profitability outlook.

The stock has gained over 160% so far this year, driven by a surge in interest in AI-linked stocks after chatbot ChatGPT's successful launch late last year.

C3.ai is a popular name among retail traders, and was among the top ten trending stocks on Thursday on amateur investor-focused website Stocktwits.

However, this year it has also faced the scrutiny of short sellers with a short interest of 31.7% of its outstanding shares, data from S3 Partners showed.

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 average rating of 14 analysts covering the stock is "hold", and their median price target is $28, according to LSEG.

On Wednesday, C3.ai said it expects annual adjusted operating loss to be between $115 million and $135 million, compared with its prior forecast of $70 million-$100 million.

Revenue of $73.2 million in the second quarter ended Oct. 31 missed LSEG estimates of $74.3 million.