C3.ai (NASDAQ:AI) investors are facing a disaster today and are frantically bailing out before things get any worse. If current reports about potential accounting issues at the AI software producer are true, this could well be the case. Investors sent share prices plummeting over 25% in Tuesday afternoon’s trading, and just how deep this rabbit hole gets is unclear as yet.
Pick the best stocks and maximize your portfolio:
- Discover top-rated stocks from highly ranked analysts with Analyst Top Stocks!
- Easily identify outperforming stocks and invest smarter with Top Smart Score Stocks
The plunge began earlier today after Kerrisdale Capital sent a letter to C3.ai’s auditor, outlining some of the biggest concerns from a report a few weeks prior. The letter detailed a series of accounting concerns that Kerrisdale had unearthed. Perhaps more unnerving was that the Kerrisdale letter had also been sent to the chair and the chief accountant at the Securities and Exchange Commission. The letter addresses several points, including “highly conspicuous growth in unbilled receivables,” which had apparently reached levels that Kerrisdale had never seen, and “opaque, confusing, and highly concerning disclosures,” among other points.
That’s bad enough by itself, but it gets worse: investors may have left for reasons not related to Kerrisdale tipping off the feds. One key point was financial results from its latest quarter, in which its revenue declined the most seen yet. A second key point was that much of C3.ai’s business comes from the energy sector, so if oil prices were to crash, C3.ai would suffer accordingly. Given OPEC’s latest move, though, that seems unlikely. Finally, C3.ai could be a victim of its own success; the rapid run-up hasn’t left much extra room to grow, at least for now.
Analysts are taking a wait-and-see stance too. Currently, analyst consensus calls it a Hold based on three Buys, three Holds, and two Sells. Worse yet, AI stock comes with 17.82% downside risk thanks to its average price target of $20.71 per share.
