What factors have contributed to C3.ai’s strong sales growth in the fourth quarter?

C3.ai Inc. plummeted on Tuesday after projecting sales that disappointed investors, after a previous surge in its share prices due to its artificial intelligence technology.

Shares of C3.ai, founded in 2009, fell over 18 percent in early trading after the company forecast revenue of between $95 million and $100 million in the next fiscal year, short of the analysts’ estimate of over $110 million.

The company, which provides software for businesses to set up AI services on the cloud, has seen its shares jump more than 200% this year. It went public through a special purpose acquisition company in December.

Jim McHugh, CEO of C3.ai, said the company is still in its early stages and believes it will eventually reach its goals.

“We’re focused on solving one of the most significant challenges that we face in the world today, which is to empower organizations of all sizes to address their most complex challenges with AI,” McHugh said

Analysts were surprised at the Disappointing figures given C3.ai’s strong sales growth in the fourth quarter, which was driven by demand for its cloud-based platform that helps businesses build AI-enabled applications.

Analysts at Cowen & Co said they had been too optimistic about C3.ai’s performance and that the company’s growth rate is low compared to peers.

“We believe the key to judging success will be the company’s ability to sell more deeply into existing customers, and expand into new customer accounts,” Cowen analysts wrote in a note.

As AI continues to be used more widely in business and other sectors, investors are struggling to evaluate the long-term prospects for C3.ai and its peers. While C3.ai’s stock has given investors good returns over the past year, its disappointing sales forecast could make investors rethink their long-term bets.
ed shortened to 3.7 months from 5 months in the same period a year ago.

Chief Financial Officer Juho Parkkinen said the company continues to expect to be profitable on an adjusted basis by the fourth quarter of 2024. He added that C3.ai expects to “invest aggressively to generative AI initiatives during the first half of the year.”

Despite the disappointing revenue outlook, C3.ai’s stock has still seen a meteoric rise this year, with its share price more than tripling. The company’s new generative artificial intelligence product suite has been met with enthusiasm from investors, and C3.ai has closed AI application agreements with Georgia-Pacific, Flint Hills Resources, and the U.S. Department of Defense Missile Defense Agency in the quarter. However, not all analysts are convinced the new technology will be ground-breaking for C3.ai.

“The results confirm C3.ai likely has a very small revenue exposure to generative AI or large language models,” Bloomberg Intelligence’s Mandeep Singh said of the three pilot projects with limited revenue. “C3 is still heavily focused on the energy vertical and I don’t see it expanding across industries given the competition from hyperscale cloud vendors and other large application software providers.”

C3.ai has struggled to sign new major customers, and recently shifted to consumption pricing — paying for software based on use rather than in a flat subscription — to court companies that are hesitant to commit to big contracts. The company said it inked 43 agreements in the quarter, including 19 pilots and touted that the average sales cycle shorten to 3.7 months from 5 months in the same period a year ago.

Despite the challenges, C3.ai has still seen a remarkable rise in its stock price this year, with investors developing an insatiable appetite for AI. The company has shifted to consumption pricing to court companies that are hesitant to commit to big contracts, and inked 43 agreements in the quarter, including 19 pilots. C3.ai’s Chief Financial Officer Juho Parkkinen said the company continues to expect to be profitable on an adjusted basis by the fourth quarter of 2024, and expects to “invest aggressively to generative AI initiatives during the first half of the year.”

Read more: C3.ai Criticized for Product Delays, Tom Siebel’s Micromanaging