Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 6.04% in the morning session after the company reported first quarter results with revenue narrowly exceeding analysts' expectations. However, gross margin missed and has generally been on a downward trend. The company expects more short-term pressure due to "a higher mix of pilots, which carry a higher cost of revenue during the pilot phase of our customer life cycle." In addition, the outlook for the full year operating loss is larger (meaning the company expects to lose more money for the full year than its outlook, which was given about three months ago). The company is investing in areas such as sales and marketing and AI. While these investment decisions could prove to be the right ones over the long term, investors seem skeptical today.
On the other hand, its full-year revenue guidance came in higher than Wall Street's estimates. Zooming out, this was a mixed but mediocre quarter, especially on the profitability front.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy C3.ai? Access our full analysis report here, it's free.
What is the market telling us:
C3.ai's shares are very volatile and over the last year have had 74 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 biggest move we wrote about over the last year was five months ago, when the company dropped 14.4% on the news that short seller, Sahm Adrangi of Kerrisdale Capital, sent a letter to Deloitte & Touche, conveying worries about alleged accounting problems at the firm.
C3.ai is up 143% since the beginning of the year, but at $26.85 per share it is still trading 42.1% 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 $290.93.
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