C3.ai Is About to Have its Feet Held to the Fire

AI Stock - C3.ai Is About to Have its Feet Held to the Fire

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On Apr. 8, the Rosen Law Firm issued a press release reminding investors who bought C3.ai (NYSE:AI) between Dec. 9, 2020 and Feb. 15, 2022, that they may be entitled to compensation if they bought AI stock during those 14 months. The class-action lawsuit filed against the company states that C3.ai’s initial public offering (IPO) documents from December 2020 contained misleading statements about the condition of its business. These statements may have persuaded investors its stock was a good investment. Litigation is now on the table. However, before you write off the artificial intelligence software provider’s stock, investors should consider the points in question under the lawsuit. 

C3.ai’s Deteriorating Partnership and AI Stock

The lawsuit states that when the company went public on Dec. 9, 2020, it already knew that its partnership with Baker Hughes (NASDAQ:BKR) was deteriorating. Further, it used a flawed accounting methodology to hide this fact from investors.  

In early April, I pointed out that in the company’s third quarter (Q3) 2022 conference call, Chief Executive Officer (CEO) Tom Siebel stated that 32% of its business in the quarter was closed due to its partnership with Baker Hughes. I’m not talking about the energy technology company using C3.ai software, although it does do that. Instead, the 32% figure from Siebel indicates Baker Hughes’ ability to sell C3.ai’s products and services to third parties. This hardly seems like a deteriorating partnership.

C3.ai Faces a Tough Sell

The other central point of the class-action lawsuit is that it claims the company neglected to mention salesforce turnover and its product is a tough sell. Tom Siebel discussed this subject in its latest conference call. The CEO said that due to refocusing its sales staff on its traditional strategic accounts engagement model, it has been able to reignite sales growth. He stated:

“I think we got the sales organization back on track. The companies — our customers continue to accelerate their implementations at a very substantial rate. And I think that as we enter Q4 of this fiscal year, the company is exactly on track, doing exactly what we said we would be doing when we took this company public.”

I’m not a lawyer, but it will be difficult for the class-action lawsuit to prove that C3.ai knew its software was a tough sell. Nevertheless, revenues rose by 42% in the third quarter, with a backlog of $536.7 million, 81% higher than a year earlier. The class-action lawsuit seems like much ado about nothing from where I sit. Under $20, AI stock is a good entry point for aggressive investors.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


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