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C3.ai shares see meme-like spike amid short selling, ‘AI frenzy’ and earnings


Massive rally of C3.ai Inc. is expected to continue on Friday, but at least one analyst is tempering their enthusiasm following the latest earnings report from the artificial intelligence software company.

Shares of C3.ai
WHO,
+18.12%

jumped more than 16% in premarket trading on Friday after the company posted better-than-expected numbers for its latest quarter, reiterating its adjusted profit target at the end of fiscal 2024 and calling for called business sentiment “significantly improved”.

See more: C3.ai stocks soar as CEO Siebel touts ‘significant shift’ in sentiment amid AI hype

The pre-market gains come as shares of C3.ai have rallied about 90% higher so far in 2023 amid investor interest in AI, fueled by popularity of OpenAI’s ChatGPT chatbot.

Needham analyst Mike Cikos said: “We think some of the strength in stock prices (up 16% pre-market) is due to short selling offsets (with 25% short interest). “. “Furthermore, the stock’s year-to-date performance shows that Generative AI and C3 fervor is becoming a meme stock.”

C3.ai boasts success with its transition to a consumption-based pricing model, but Cikos wrote that the shift is still in its early days. He noted that “the total number of pilots in [the fiscal third quarter] is 17, no customer conversion yet.”

Cikos explains that the pilot programs are for six months, meaning “C3 only started seeing customer conversions in the current quarter.” Furthermore, he said: “In the short term, the model’s success will be based on the completion of test pilots, while medium and long-term success will be measured on Consumption.”

He rates the stock being held.

Other analysts are more optimistic.

“What was most encouraging to us was management’s commentary on the needs of the business,” wrote DA Davidson’s Gil Luria. “We believe positive sentiment towards creative AI [has] generated discussions in multiple boardrooms about how to combine AI, and C3.ai is particularly well positioned to help those businesses implement those.”

In his view, the company’s move to a consumer-oriented model “allows C3.ai to start these conversations at a small scale and scale them from there.”

He has a buy rating and a $30 price target for the stock.

Piper Sandler’s Arvind Ramnani thinks C3.ai’s “progress towards profitability is very impressive” as the midpoint of the company’s fiscal 2023 operating loss target shifted to 27% after the latest quarter, from a level 35% after the company’s previous report.

“Remarkably, the company has indicated that it is seeing headwinds from improved business optimism and that the environment now looks ‘significantly different,’” Ramnani said in his report. ‘. “In our view, this will likely lead to improved growth and therefore we are modeling 19.7% [year-over-year] growth in [fiscal 2024]up from 5.1% in [fiscal 2023].” His estimates do not yield the expected contributions from C3.ai’s newer product listings.

Ramnani rates the stock at neutral, although he has raised his price target to $23 from $13.

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