C3.ai, a company specializing in enterprise AI applications, has experienced a surge in its stock price, outperforming even industry giant Nvidia. Investors have been captivated by anything related to artificial intelligence, and C3.ai has capitalized on this growing interest.
Founded by Tom Siebel, who also founded Siebel Systems (later acquired by Oracle), C3.ai offers software that supports various business functions such as customer relationship management, cash management, and supply chain operations.
In its latest fiscal quarter results, C3.ai reported a thriving business environment for enterprise AI and hinted at an accelerating trend. This news served as a catalyst for the stock’s meteoric rise.
While the stock’s upward trajectory has stabilized in recent weeks, there is one significant factor that could potentially ignite another jump in its price: short sellers. As of June 30, 2023, over 36% of C3.ai’s stock float was sold short, indicating a large bet on the stock’s imminent decline.
However, if these short sellers are proven wrong and the share price of C3.ai surges again, a scenario known as a short squeeze could occur. In a short squeeze, as short sellers rush to cover their positions, the stock experiences a rapid price increase, potentially exceeding 50% or more.
Several catalysts could trigger such a short squeeze. Positive news for another AI stock could create a ripple effect benefitting C3.ai. Additionally, the company’s upcoming fiscal 2024 Q1 results, expected to be announced in approximately a month, could serve as a fuse for a short squeeze if they surpass analysts’ expectations.
Despite allegations made by short sellers Spruce Point Capital Management and Kerrisdale Capital Management, which were refuted by C3.ai’s investigation, the short interest in the stock has not decreased. Instead, it has continued to rise.
Given the current momentum in the AI market, it would be imprudent to bet against C3.ai or any other AI stock. The unpredictable nature of market dynamics makes it challenging to determine how long the trend will last. However, potential investors should approach C3.ai with caution. Although the company’s prospects are improving, it is yet to achieve profitability. Thus, it is essential to consider if the current premium valuation, with a forward price-to-sales multiple of over 14x, is justified.
While C3.ai has the potential for significant price movements, both upwards and downwards, it is crucial for investors to recognize the associated risks. The presence of numerous short sellers targeting the stock adds another layer of complexity and makes the outlook uncertain.
In conclusion, C3.ai’s stock has soared amid the AI frenzy, drawing attention from investors enamored with artificial intelligence. With short sellers expecting a decline, the potential for a short squeeze cannot be disregarded. However, considering the company’s current valuation and ongoing uncertainties, investors should approach C3.ai with caution. As the AI market remains dynamic, only time will reveal the stock’s true trajectory.
