What happened
Shares of C3.ai (AI 3.02%) were among the big winners in the first half of 2023; the enterprise stock jumped as investors piled into artificial intelligence stocks.
C3.ai's gains came in spite of a short-seller attack and mostly disappointing earnings reports as growth has been flat and the company continues to post wide losses. Nonetheless, CEO Thomas Siebel has touted increasing demand for its software, and the company said it expects to be profitable on a non-GAAP basis by the end of fiscal 2024.
That, along with the spike in interest in AI stocks, helped drive C3.ai to more than triple in the year through June, according to data from S&P Global Market Intelligence, compared to a gain of 15.9% for the S&P 500 index.
The chart below shows that the stock was highly volatile even as it made dramatic gains in the first half of the year.
So what
As you can see from the chart, most of the action on the stock came in a few brief spurts.
C3.ai, which offers pre-built AI-based applications like demand forecasting, started surging at the end of January as interest in generative AI increased following earnings reports from Microsoft and Alphabet, which indicated that both companies saw artificial intelligence as the next major technology. Additionally, reports emerged that Microsoft would launch a version of Bing, powered by ChatGPT, and that Alphabet would launch its own AI chatbot, named Bard. Both came out in early February announcements.
The stock jumped 88% in just eight sessions, and trading volume also skyrocketed, indicating investors now saw the stock as a way to play the emerging AI sector.
C3.ai then briefly spiked in early March on its third-quarter earnings report as it beat estimates on the top and bottom lines. Yet the stock fell the following week as a short report from Kerrisdale Capital said the company has struggled to find new customers, relying on Baker Hughes for much of its business, and said the stock was inflated on hype around ChatGPT.
After a brief pop at the end of March, which was possibly due to end-of-quarter rebalancing at investment funds, the stock plunged again at the beginning of April as Kerrisdale disclosed a letter it had sent to the SEC alleging C3.ai of wrongdoing.
Finally, the stock surged in May after it impressed investors with its preliminary earnings numbers and jumped again following Nvidia's blowout guidance later in the month.
Now what
With the stock having tripled this year, C3.ai now has a lot to prove as revenue growth has been flat and losses are still mounting. The company expects revenue growth to accelerate to 15% at the midpoint of its guidance for fiscal 2024, but the stock is richly valued at a price-to-sales ratio of 16.
C3.ai won't maintain its gains from the first half of the year on AI hype alone. The business needs to deliver.
