C3.ai (AI) Stock Trades Down, Here Is Why

Adam Hejl /
2023/06/21 12:35 pm EDT

What Happened:

Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 7.25% in the morning session after Federal Reserve Chairman Jerome Powell delivered the Semi-Annual Monetary Policy Report to Congress. The Fed Chair remarked that further interest rate hikes are expected by the end of the year. He added that "inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go." In June 2023, the Federal Open Market Committee decided to hold the target range steady to evaluate additional information and the impact on monetary policy. There was hope that interest rate hikes would be paused for the short to medium term. As a reminder, higher rates generally hurt stock prices, as today's stock price is the present value of future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher that discount rate. In addition, higher rates particularly hurt higher-growth stocks such as tech names since investors must discount financials further out in the future back to the present.

What is the market telling us:

C3.ai's shares are very volatile and over the last year have had 70 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was three weeks ago when the stock fell 11.3% after the company reported fourth-quarter results that beat analysts' revenue and earnings per share expectations. Note that the company positively pre-announced some key Q4 metrics on May 15, 2023, about two weeks prior to officially reporting the quarter. With the full details of the quarter, key negatives included misses on key topline metrics like subscription revenue and remaining performance obligations (RPO, a leading indicator of revenue). The headline total revenue beat that was pre-announced was therefore driven by professional services revenue and considered a lower-quality beat (as opposed to a beat driven by subscription revenue, which is recurring in nature). Guidance was also mediocre. C3.ai's revenue guidance for the next quarter was roughly in line, but non-GAAP operating loss guidance was worse. Full year revenue guidance missed analysts' expectations. Non-GAAP operating loss guidance for the full year was roughly in line despite the revenue guidance miss. Overall, the results could have been better, especially given the hope baked into a stock whose ticker is AI and who has spoken at length about the AI tailwinds to the business.

C3.ai is up 242% since the beginning of the year, but at $37.89 per share it is still trading 18.3% below its 52-week high of $46.37 from June 2023. Investors who bought $1,000 worth of C3.ai's shares at the IPO in December 2020 would now be looking at an investment worth $409.59.

Is now the time to buy C3.ai? Access our full analysis of the earnings results here, it's free.