C3.ai Inc, a software company specializing in generative AI, saw its shares fall by nearly 13% after scrapping its quarterly profit forecast. The company plans to invest further in its generative AI offerings, which have been gaining attention due to the success of ChatGPT. C3.ai’s stock has risen by about 180% this year, but it reached a three-month low on Thursday at $27.31.
C3.ai reported a 10.1% increase in revenue for the first quarter, reaching $72.4 million, and narrowed its net loss per share. However, the company decided to abandon its goal of achieving quarterly profit by April 30, 2024, as it focuses on investing in its Generative AI solutions. CEO Thomas Siebel cited lead generation, branding, market awareness, and customer success as areas of investment.
Although Generative AI presents significant opportunities, J.P.Morgan analyst Pinjalim Bora believes that the top-line metrics are not yet strong enough to justify the increased investment. Bora maintains a “neutral” rating for C3.ai’s stock and considers its current multiple of nearly 11 times enterprise value-to-2024 sales as “stretched” given the hype surrounding artificial intelligence.
The average rating of 14 brokerages covering C3.ai’s stock is “hold,” and shares are currently trading below the median target price of $28. This implies a 10% downside over the next 12 months. Since early June, C3.ai’s shares have dropped by 21% due to a disappointing quarterly revenue forecast that affected sentiment towards AI-linked stocks.
In conclusion, C3.ai’s decision to scrap its profit forecast and focus on investing in generative AI has led to a decline in its stock price. While Generative AI presents promising opportunities, analysts are hesitant due to the current top-line metrics and the stock’s valuation. However, the company’s full-year revenue outlook remains unchanged. Investors will be watching closely to see how C3.ai’s strategy plays out in the coming months.
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