C3.ai stock plummets as some say company isn't capitalizing enough on the AI frenzy

By Emily Bary

Generative AI 'unlikely to represent a significant revenue-generating opportunity for the company,' one analyst says

As its name would imply, C3.ai Inc. is all about artificial intelligence. But given that focus, some on Wall Street are waiting for the company to capitalize on the AI frenzy in a more serious way.

Share of C3.ai (AI) tumbled 18% in morning trading Thursday after the company, which makes enterprise-AI software, offered a full-year revenue forecast that trailed the consensus view.

See more: AI startup C3.ai's stock plunges 22% after softer revenue guidance

C3.ai "is likely to expand wallet share with existing clients," Piper Sandler analyst Arvind Ramnani wrote, as he saw improved deal closure during the latest fiscal year, which just wrapped up.

"However, we would like to see some of these underlying growth drivers to translate to higher levels of revenue growth to get more constructive on the stock," he continued, while maintaining a neutral rating but upping his price target to $29 from $23.

The company's forecast for the new fiscal year implied 15% revenue growth.

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Third Bridge analyst Jordan Berger expressed similar caution.

"Despite AI optimism, we are hearing from our experts that generative AI is unlikely to represent a significant revenue-generating opportunity for the company and more likely represents a means for augmenting the user experience and searchability of the current platform," he wrote. "The company reported progress towards deploying generative AI technology within its platform, but how this will translate to revenue upside remains to be seen."

Another issue for C3.ai is that the company has been transitioning to a consumption-based business model, which brings some near-term pain, especially with a generally more constrained spending landscape.

"Net/net, 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 as the company navigates a business-model transition in the thick of a challenging macro backdrop," JPMorgan's Pinjalim Bora wrote, while sticking with a neutral rating but lifting his target price to $15 from $13.

He further noted that the stock's multiple of about 15 times enterprise value to estimated calendar 2024 revenue looks "stretched given the hype around artificial intelligence." C3.ai's stock has run up 175% so far this year.

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D.A. Davidson's Gil Luria chimed in that C3.ai shares "are more properly reflecting the prospects of acceleration for the back half of the year" as he downgraded the stock to neutral from buy.

Wedbush's Dan Ives, meanwhile, was more optimistic, upgrading the stock to outperform from neutral and taking up his price target to $50 from $24.

"Overall we would characterize this as an impressive quarter and overall performance by C3 with conservative guidance the prudent move as C3 navigates this consumption model transition the next few quarters," he wrote.

The company is targeting adjusted profitability in fiscal 2024, and Ives saw the latest results as "another major step in the right direction for the C3 story" that "underscores our increased confidence in the C3 AI-driven story."

-Emily Bary

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06-01-23 0949ET

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