By Medha Singh
(Reuters) -Shares of C3.ai Inc dropped 13% on Thursday after the software maker's disappointing quarterly revenue forecast dented some of the recent euphoria around artificial intelligence-linked stocks.
Most other AI-related small-cap stocks also fell, with analytics firm BigBear.ai, conversation intelligence firm SoundHound AI and Thai security firm Guardforce AI down between 2.8% and 5.7%.
C3.ai, one of the biggest beneficiaries of the AI boom sparked by the viral success of ChatGPT, has seen its market value more than triple in 2023.
A jaw-dropping forecast last week from Nvidia (NASDAQ:NVDA), the world's most valuable listed semiconductor company, further fueled C3.ai's rally, sending its shares to a near 1-1/2-year high on Tuesday.
Dampening that optimism, the midpoint of C3.ai's full-year revenue forecast of $307.50 million came in below analysts' expectations of $317.1 million, according to Refinitiv data.
The Redwood (NYSE:RWT) City, California-based company is experiencing a slowdown in revenue as a result of its turnaround to a consumption-based pricing model from a subscription business.
The company, however, said it had received bookings from diverse industries thanks to strong AI software demand, and it remained on track to post a profit by the end of April 2024.
"We've been consistently bullish on the company's long-term potential to capture enterprise demand for AI-powered solutions in what is likely the first inning of the adoption cycle," Canaccord Genuity analysts said in a note.
However, they are "cautious on timing, particularly due to the fluid state of the financials as the company shifts toward consumption pricing and positive EBIT (earnings before interest and taxes) exiting 2024."
At least six out of 12 brokerages covering the stock raised their price targets on the company, lifting the median Wall Street target to $27, more than double from March 1. The average rating was "hold".
"We would like to see some of (the) underlying growth drivers to translate to higher levels of revenue growth to get more constructive on the stock," Piper Sandler analyst Arvind Ramnani said.
The stock was trading at 11 to 14 times its 2024 sales estimates, placing it among the most expensive software assets, Cannacord Genuity said.
The stock's stellar year-to-date gains have also attracted bearish investors, with 29.7% of C3.ai's free float shorted, according to Ortex data.
A 20% share price drop will translate to $218 million in profit for short-sellers, Ortex said.
C3.ai attracted the third-highest retail inflows in the past week, according to J.P.Morgan, indicating its continued popularity.