C3.ai’s stock explodes higher in continuation of meme-like surge

See more: C3.ai stock rockets as CEO Siebel touts ‘dramatic change’ in sentiment amid AI hype

The gains come as C3.ai’s stock had already powered about 90% higher over 2023 in the lead up to Thursday afternoon’s earnings report 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.

Read: C3.ai CEO Siebel says other tech companies’ AI hype is ‘just talk’ as stock spikes toward $3 billion valuation

Some analysts highlighted a discrepancy between C3.ai’s enthusiastic tone and its current financials.

“Management’s tone on the environment has turned surprisingly positive,” Morgan Stanley’s Sanjit Singh said as he kept his underweight rating and $12 target price on the stock. “However, this optimism is yet to be reflected in numbers as 3Q rev fell YoY and 4Q guidance assumes growth will be flat to down.”

Deutsche Bank’s Brad Zelnick took a similar view.

“While we are encouraged that early results are reported to be going to plan
associated with the transition to a consumption model, it is still early days and a lot
of work remains to bridge the gap from the results we saw in F3Q (revenue -4% y/y
and OM -23%) to FY24 targets,” he wrote.

Zelnick reiterated a sell rating on C3.ai shares but boosted his price target to $16 from $11.

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.