C3.ai shares slide as revenue forecast fails to live up to AI hype

FILE PHOTO: Artificial Intelligence words are seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration/

(Reuters) - Shares of C3.ai Inc dropped nearly 20% in premarket trading on Thursday after the AI software maker's quarterly revenue forecast missed estimates, dampening some of Wall Street's recent euphoria around AI-linked stocks.

Most other small-cap artificial intelligence (AI) stocks fell after the disappointing outlook. AI analytics firm BigBear.ai, conversation intelligence firm SoundHound AI and Thailand's security firm Guardforce AI were down between 0.5% and 7.5%.

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, benefitting from the strong AI software demand and remained on track to post a profit by the end of April 2024.

"We've been consistently bullish on the company's long-term potential to capture enterprise demand for AI-powered solutions... (but) we've just been cautious on timing, particularly due to the fluid state of the financials as the company shifts toward consumption pricing and positive EBIT exiting FY24," Canaccord Genuity wrote in a note.

At least four brokerages raised their price targets on the company, lifting the median Wall Street target to $24, more than double from three months ago, Refintiv data showed. Average Wall Street rating was "hold".

"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," said Piper Sandler analyst Arvind Ramnani.

(Reporting by Medha Singh in Bengaluru; additional reporting by Vansh Agarwal; Editing by Rashmi Aich)

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