What Happened:
Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 9.51% in the morning session after analyst Brad Zelnick of Deutsche Bank maintained a Sell rating on the company's stock and lowered the price target to $16. The analyst stated that the investor meeting held on June 22, 2023 "left a lot to be desired" as the company failed to provide sufficient information on financials and operational updates. Zelnick expressed skepticism regarding the company's platform differentiation, customer traction, and ability to meet financial targets. He also highlighted the CEO's 10b5-1 (share-selling plan) included in the company's 10-K filing (annual report). A CEO selling shares is often perceived as a lack of confidence in the company's future prospects by investors, potentially signaling concerns or doubts about its performance and growth potential. This can lead to increased caution among investors and may negatively impact the stock price, undermining investor confidence in the company's leadership and overall outlook. Similarly, Keybanc analyst, Michael Turits, shared a bearish note after the investor meeting. The analyst remarked that "From a model perspective, we remain cautious around decreased revenue visibility with the shift to consumption pricing and the timing of any subscription acceleration."
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 2 days ago, when the stock dropped 7.25% on the news that 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.
C3.ai is up 202% since the beginning of the year, but at $33.48 per share it is still trading 27.8% 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 $361.46.
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