C3.ai (NYSE:AI) stock rallied into its earnings report on Wednesday. However, the stock has plunged following the release as investors appear to be pricing in a weaker-than-expected outlook for the company.
For AI-related companies like C3.ai, guidance can often be more important than the company’s numbers. That’s because investors don’t necessarily care what the company has done over the past three months – the thesis for these companies involves looking forward, sometimes over years.
Let’s dive into what C3.ai reported and why this stock is down so big today.
What Did the Earnings Report Tell Us?
In the earnings report, analysts expected to see roughly $74 million in revenue for the quarter, alongside a loss of 18 cents per share. In this regard, the company’s loss of only 13 cents per share may be viewed positively, considering the importance many investors place on profitability and the trajectory of companies like C3.ai that remain unprofitable.
Unfortunately, the company missed on the top line, bringing in only $73.2 million. Additionally, C3.ai’s management team issued forward guidance of $76 million at their midpoint for the January quarter. The Street had priced in forward revenue of $77.7 million for the next quarter, suggesting this company’s growth rate may not be as robust as initially thought.
Now, the question is whether C3.ai is sandbagging its results or looking to lower the bar heading into 2024 due to structural headwinds on the horizon. The company did note that growth has been accelerating, partly due to a shift toward a “consumption-based pricing model.” However, this growth rate doesn’t seem to have cut it for investors.
Profitability Another Concern
Furthering this selloff, C3.ai’s profitability trajectory may differ from initially thought. The company now expects to be profitable (on an adjusted basis) by its fiscal Q4. Investors hoping the AI company’s recent earnings beat could translate into profitability next quarter have been disappointed.
I believe these results were generally quite solid, and C3.ai is a company that’s still certainly in the hyper-growth category. Yes, its revenue growth didn’t meet investors’ expectations, and anything but a stellar beat was likely to generate some selling pressure. However, this company is likely to be profitable in 2024, which investors may want to take some solace in.
So, Is AI Stock Worth Buying On This Dip?
Given the rather incredible run-up in C3.ai’s valuation over the past year, today’s 11% dip could be a harbinger of what’s to come. After all, what goes up in an elevator can often come down just as fast, and if the market turns sour on the growth or profitability prospects of companies like C3.ai, this momentum could build.
I’m going to remain cautious on C3.ai for now. I think the company remains a key option for investors seeking a pure-play in the AI space. Its growth rate is strong, and once the company turns profitable, value investors can take a deeper look at the stock.
However, until I see black ink on the company’s bottom line, I’ll have to keep this one on the watch list. This earnings report disappointed, and there could be more disappointment ahead. For that reason, I think investors may want to wait on this dip, at least for now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.