C3.ai (AI 3.10%) seems to be making a strong case for being the biggest battleground stock of the year. Share prices of the company, which bills itself as a software-as-a-service provider of artificial intelligence (AI) platforms, have surged thanks to a tidal wave of interest in AI. The stock even tripled in value at one point this year.

However, C3.ai is not without its risks. This "growth" stock actually posted a revenue decline in its most recent quarter, as well as a wide loss. The company is shifting its business model to a consumption-based one, rather than a subscription-based one, and its valuation is also steep, with a price-to-sales ratio of 10.

The biggest battleground to open occurred when short-seller Kerrisdale Capital laid out its case against the AI stock earlier this month. The research firm alleges that C3.ai was booking fictional revenue and that it's more of a consulting business than a software company. The accusations convinced enough investors to sell that it wiped out roughly 40% of the stock price in the days that followed the report's release. The stock has since recouped some of those losses after the company dismissed the attack, arguing that Kerrisdale demonstrated a fundamental misunderstanding of generally accepted accounting principles (GAAP).

Kerrisdale made other arguments as well. Two, in particular, deserve investor attention as they seem to be getting little attention.

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Image source: Getty Images.

1. C3.ai has made a bizarre series of name changes

Much of C3.ai's gains this year seem to have come simply because "AI" is in the company's name. Other stocks, such as BigBear.AI and Soundhound AI, also surged with their prices up by triple-digit percentages in the weeks following the growing hype over ChatGPT and the potential of AI. Many investors bought in earlier this year largely because they look like pure-play AI stocks, strictly based on their names. 

A closer look at C3.ai's history, however, shows that its connection to "AI" may be more tenuous than investors think. 

The company was founded as C3 in 2009 and renamed itself as C3 Energy in 2012 around the time that oil prices and oil production was surging. C3 Energy focused on providing data analytics for grid operators and public utilities for much of its early history. But then oil prices plunged in 2015. In 2016, the company renamed itself as C3 IoT, around the time the Internet of Things was becoming a buzzword. At the time, the company said, "The name change reflects an evolution of the company, the broadening of its customer base, and a significant expansion of its addressable market."

Of course, the name C3 IOT didn't stick either, and in 2019, the company renamed itself again as C3.ai, seemingly to capture the buzz around artificial intelligence.

Companies do change their names, usually to reflect a shift in the business or a single revenue stream becoming predominant, but three name changes in less than 15 years give the impression of a company casting about for an identity that captures the zeitgeist in the stock market, rather than explains what it does.

If that's the case, it would appear the company struck gold with the name C3.ai, but its history shows that the company may not be as committed to artificial intelligence as investors might think, and much of its talk about AI could just be salesmanship.

2. A revolving door at the CFO chair

As Kerrisdale also observes, C3.ai has had four CFOs in just the past three years.

Marc Levine served from April 2019 to October 2020. David Barter was on board from October 2020 to December 2021, and Adeel Manzoor followed him for just three months. Juho Parkkinen has now been CFO for a little more than a year. 

Rapid changes in CFOs and other accounting personnel can signal irregularities or other problems in a company's financial reporting. C3.ai and its officers were been sued for allegedly making material misstatements in its IPO in December 2020.

The company's financial reporting has also been inconsistent. For example, it changed the way it defines customers, going from total companies to divisions within a company, and referring to parent companies as "customer-entities." Naturally, that inflates the number of customers the business can claim. 

The decision to change its business model from subscription-based to consumption-based also gives the company an opportunity to obfuscate the fundamentals of the business and excuse away its poor results. 

While the turnover at the CFO position doesn't necessarily mean the company's reporting isn't trustworthy, it does reflect poorly on the company and CEO Thomas Siebel's own ability to retain top management, especially in a crucial position.

In the context of other issues such as declining revenue and the accounting irregularities that Kerrisdale brought up, that's yet another reason this hot stock is best avoided.