What happened
Shares of Veritone Inc. (VERI -4.27%) fell 30.3% on Wednesday after a short-seller suggested that the artificial intelligence technology specialist should be trading significantly lower after its recent meteoric rise.
More specifically, Veritone stock began to plunge late this morning after short-selling firm Citron Research took to Twitter to muse, "[Veritone] is not artificial intelligence, more like natural stupidity. Stock should trade right back to $20."
IMAGE SOURCE: GETTY IMAGES.
So what
Citron is well-known for writing scathing reports on the companies it targets, then benefiting from when their stock prices decline in response. Citron made headlines early last week, for example, by leveling questionable fraud allegations against Ubiquiti Networks.
To be fair, I did urge caution on Veritone last week as the stock continued to skyrocket despite no company-specific news. For perspective, Veritone held its initial public offering at $15 per share just over four months ago. After initially dropping more than 45% over the course of the next quarter, shares began their startling ascent following a bullish Barron's article featuring the company on Aug. 18, 2017. Veritone stock traded as high as $74.92 per share this morning just prior to Citron's tweet.
Now what
Here again, that's the risk of investing in relatively small tech companies like Veritone so soon after they've gone public. While a combination of short covering, increased visibility to retail investors, and momentum can lead to incredible gains over short periods of time, those gains can disappear just as quickly at the first sign of trouble. In this case, that trouble arrived as investors fear a more comprehensive bearish report from Citron Research may be on the way.
For now, I'll reiterate that I'm most comfortable watching Veritone's progress from the sidelines, as I'd like at least one more quarter of financials to better gauge whether it's worthy of a long-term investment.
