C3.ai Inc.’s roaring rally was set to continue Friday, but at least one analyst was tempering their enthusiasm in the wake of the latest earnings report from the artificial-intelligence-software company.
Shares of C3.ai AI,
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The premarket gains come as C3.ai’s stock has already powered about 90% higher so far in 2023 amid heated investor interest in AI, spurred by the popularity of OpenAI’s ChatGPT chatbot.
“We attribute some of the stock’s share-price strength (up 16% pre-market) to short covering (with 25% short interest),” Needham analyst Mike Cikos said in a note to clients Friday. “Furthermore, the stock’s year-to-date performance demonstrates Generative AI fervor and C3 getting caught up as a meme stock.”
C3.ai boasted of success with its transition to a consumption-based pricing model, but Cikos wrote that the shift is still in its early days. He noted that the “total number of pilots in [the fiscal third quarter] was 17, without a single customer conversion as of yet.”
Cikos explained that pilots have a six-month duration, meaning that “C3 is only starting to see customer conversions in the current quarter.” Furthermore, he said: “Over the short-term, model success will be based on closing pilots, while medium- to longer-term success will be measured on Consumption.”
He rates the stock at hold.
Other analysts were more upbeat.
“Most encouraging to us was management commentary regarding enterprise demand,” wrote DA Davidson’s Gil Luria. “We believe that the positive sentiment towards generative AI [has] created discussions at many board rooms about how to incorporate AI, and that C3.ai is especially well positioned to help those enterprises with those implementations.”
In his view, the company’s move to a consumption-driven model “allows C3.ai to start these conversations at a small scale and ramp them from there.”
He has a buy rating and $30 target price on the stock.
Piper Sandler’s Arvind Ramnani chimed in that C3.ai’s “progress towards profitability was impressive” as the midpoint of the company’s fiscal 2023 operating-loss target moved to 27% after the latest quarter, from 35% after the company’s prior report.
“Notably, the company indicated that it is seeing tailwinds from improved business optimism and the environment is looking ‘dramatically different’ now,” Ramnani said in his report. “In our view, this will likely result in an improved growth, and we are thereby modeling 19.7% [year-over-year] growth in [fiscal 2024], up from 5.1% in [fiscal 2023].” His estimates don’t bake in expected contributions from C3.ai’s newer product roster.
Ramnani rates the shares at neutral, although he upped his price target to $23 from $13.