C3.AI (NYSE:AI) led artificial intelligence (AI) stocks lower on April 4 after a short seller warned about its accounting practices.
Shares in the AI company founded by Thomas Siebel fell 26% and another 3% overnight. They were expected to open on April 5 at a little over $24 after opening on April 4 at about $34.
Other stocks in the much-hyped field fell as well. Guardforce AI (NASDAQ:GFAI) fell 32%, BigBear AI (NYSE:BBAI) was down 14% and Soundhound AI (NASDAQ:SOUN) dropped 12%.
Slow That Hype Train
Kerrisdale Capital sent C3.AI executives a letter, along with auditors at Deloitte. It expressed concern about unbilled receivables, classifying revenue costs as research, and the turnover of chief financial officers, among other matters. A stockholder also sued the company, claiming it misled investors in its 2020 public offering. The company has not publicly responded to the letter.
On March 2, C3.AI reported a GAAP loss of 57 cents per share for the December quarter, on revenue of $66.7 million, with 236 customers. It guided revenue of $70-72 million for the current quarter and about $265 million for the year. The company’s market capitalization entering April 5 was approximately $2.6 billion.
It’s the sky-high valuations for anything claiming to be “artificial intelligence” that is telling investors like Ann Berry of Threadneedle to slow their roll into these stocks. “We’ve got to pare it back,” she told Yahoo Finance, noting the failed hype over the metaverse and blockchain.
Other analysts are telling investors not to worry. C3.AI recently changed its business model from one based on subscriptions to one based on consumption. Investors commenting on Stocktwits remained relatively bullish.
AI Stocks: What Happens Next?
Nothing goes up in a straight line. At some point in a hype cycle, companies are called upon to justify their valuations. This is an opportunity for investors to do their homework.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
