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

See more: C3.ai stock soars as CEO Siebel touts a “dramatic shift in sentiment” amid AI hype

The gains come as C3.ai stock was already up about 90% over the course of 2023 ahead of Thursday afternoon’s earnings report, amid buoyant investor interest in AI fueled by the popularity of ChatGPT’s chatbot OpenAI was spurred on.

“We attribute some of the stock’s strength (up 16% premarket) to short covering (with 25% short interest),” Needham analyst Mike Cikos said in a note to clients on Friday. “Additionally, the stock’s year-to-date performance shows that Generative AI fervor and C3 as a meme stock are catching up.”

C3.ai has boasted of success in transitioning to a consumption-based pricing model, but Cikos wrote that the shift is still in its infancy. He noted that the “total number of pilots in [the fiscal third quarter] was 17, so far without a single customer conversion.”

Cikos explained that pilot projects have a duration of six months, which means that “C3 is not seeing customer conversions until the current quarter.” In addition, he said: “In the short term, the model’s success will be based on the completion of pilot projects, while the medium to longer term success will be measured by consumption.”

He rates the stock as hold.

Read: C3.ai CEO Siebel says other tech companies’ AI hype is ‘just talk’ as shares surge towards $3 billion valuation

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

“Management’s tone on the environment has turned surprisingly positive,” said Morgan Stanley’s Sanjit Singh, while maintaining an underweight stance and $12 price target on the stock. “That optimism has yet to be reflected in numbers, however, as Q3 revenue numbers were down year-on-year and Q4 forecasts call for growth to be flat to declining.”

Brad Zelnick from Deutsche Bank saw things similarly.

“Although we are encouraged that early results are reportedly going according to plan
With the transition to a consumption model, it is still early and far
Work remains to close the gap on the results we saw in F3Q (Sales -4% y/y
and OM -23%) on FY24 targets,” he wrote.

Zelnick reiterated a Sell rating on C3.ai stocks, but raised its price target to $16 from $11.

Other analysts were more optimistic.

“Most encouraging for us was management’s comment on corporate demand,” wrote Gil Luria of DA Davidson. “We believe that the positive sentiment towards generative AI [has] led to discussions in many boardrooms about how to integrate AI and that C3.ai is particularly well positioned to help these companies with these 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 accelerate from there.”

He has a buy rating and a price target of $30 on the stock.

Piper Sandler’s Arvind Ramnani agreed that C3.ai’s “progress towards profitability has been impressive” as the midpoint of the company’s fiscal 2023 operating loss target moved to 27% after the most recent quarter, from 35% after the previous one Company report.

“Notably, the company has indicated that it is being helped by improved business sentiment and that the environment now looks ‘dramatically different,'” Ramnani said in his report. “In our view, this will likely translate into improved growth and we’re modeling 19.7% [year-over-year] to lose weight [fiscal 2024]from 5.1% in [fiscal 2023].” His estimates do not factor into the expected contributions of C3.ai’s newer product listing.

Ramnani rates the stock neutral, despite raising his price target to $23 from $13.