Shares of C3.ai (AI -5.57%) plunged by 41.2% over the first six months of the year, according to data provided by S&P Global Market Intelligence, despite oil prices surging throughout the period.
Because the artificial intelligence provider for businesses has a heavy concentration in the energy industry, with some of the biggest names in oil and gas among its clients, it seems a bit surprising C3.ai hasn’t done better. But the energy sector boom hasn’t provided a gusher of opportunity for the AI outfit.
The decline in C3.ai’s stock price began last year, and was tied more to the market’s transition away from tech names into more defensive, consumer-oriented stocks as fears of a recession grew. The tech-heavy Nasdaq 100 index is down by 25% since early November.
Yet there were more specific concerns about C3.ai that contributed to an even steeper decline – it lost 60% of its value over the same period.
While the AI shop remains a fast-growing business, its customer concentration – energy services giant Baker Hughes accounted for 31% of revenue in its fiscal 2021 – decelerating revenue growth rates, and an inability to turn a profit yet have all weighed heavily on the stock.
Investor scrutiny on it intensified after short-seller Spruce Point Capital published a report asserting that C3.ai held significant downside risk because it believed its management had a penchant for overstating “customers, technology-development cost, total-addressable-market size, pace -of-market growth, market share, alliances, and sales cycle to close deals. “
C3.ai is attempting to bring in more customers, but its revenues have tended to be lumpy as it’s also trying to expand into more industries. In its most recent quarterly report, management highlighted Koch Industries, global food giant Cargill, primary care practice operator One Medical, and defense contractor Raytheon as important new customer wins or expansions.
However, the enterprise-class AI provider undermines its ability to produce a profit by paying out considerable sums of stock-based compensation. In its fiscal 2021 Q4, which ended April 30, it had gross profits of almost $ 55 million, but expenses of $ 111.4 million – including some $ 35.6 million in stock-based compensation – kept net profitability just out of reach.