What happened
Shares of C3.ai (AI -0.85%) slipped again in today's trading, ending the week down roughly 14.6%. The artificial-intelligence software company's share price closed out Friday's daily session down 4.5%, while the S&P 500 index ended the session up roughly 0.5%, the Dow Jones Industrial Average climbed 0.6%, and the Nasdaq Composite index was flat on the day.
While the broader market saw gains Friday, and there doesn't appear to have been any business-specific news behind the sell-off for C3.ai, investors have swung back to being more cautious about growth stocks. Valuations for growth-dependent software companies soared late last week as investors bet that the Federal Reserve would move away from large interest rate hikes following a better-than-expected round of inflation data, but the bullish spurt proved to be short-lived and gave way to retracement for many companies this week.
So what
Following explosive bullish momentum on Nov. 10 and Nov. 11 driven by the U.S. Labor Department's latest inflation data, investors appear to be reassessing the outlook on the monetary policy front. Confidence that the Fed will shift away from additional interest rate hikes seems to be slipping, and shifting sentiment led to sell-offs for C3.ai and other highly growth-dependent software stocks on Friday.
C3.ai's share price has fallen roughly 59% year to date and trades down roughly 93%from the high that it reached shortly after its initial public offering (IPO) late in December 2020.
Now what
C3.ai is set to publish its results for its fiscal second quarter of 2023, which ended Oct. 31, after the market closes on Dec. 7. While the company didn't issue quarterly or full-year earnings guidance with its Q1 results, management did say that it expects sales expenses as percentage of revenue to rise from 23% to 26% this year. In conjunction with broader trends in the software-as-a-service industry and the potential for a substantial economic downturn, C3.ai is making the transition from a subscription-based billing model to a largely consumption-based model -- and investors should keep an eye on how this pivot shapes performance.
C3.ai currently has a market capitalization of roughly $1.4 billion and is valued at approximately 5.3 times this year's expected sales.
