C3.ai (NYSE: AI) stock price has nosedived as the poster child of the artificial intelligence movement lose steam. The stock plunged to a low of $20.73, which was ~38% above the highest level this year. Still, it is one of the best-performing technology stocks this year having risen by over 90%.
AI momentum loses steam
A few weeks ago, I wrote an article listing some of the best artificial intelligence stocks to short. C3.ai, which was surging at the time, was one of them. My argument was that the AI craze had pushed investors to invest in companies they don’t know well. I also compared the situation to what happened during the dot com bubble when most investors bought companies with a .com suffix.
The most recent catalyst for the C3.ai stock collapse is a short-seller report that warned about accounting issues in the companies. Like Hindenberg Research, little-known Kerrisdale Capital published a lengthy report detailing key issues in the company.
The report cited numerous issues, including the fact that C3 regularly seeks to ride hot investment themes. It cited the fact that the company changed its name to IoT to capitalize on the rising investments in Internet of Things. The report added:
“C3 is a minor, cash-burning consulting and services business masquerading as a software company, and its true value is a fraction of its current market capitalization.”
The short-seller also alleged that the company was fond of manipulating its numbers. In a statement, the company said that it had written to Deloitte, raising serious concerns about the company’s numbers. C3 has denied the allegations, saying:
“The Kerrisdale letter appears to be a highly creative and transparent attempt by a self-acclaimed short seller to short the stock, publish an inflammatory letter to move the stock price downward, then cover the short and pocket the profits.”
Fundamentally, it seems like C3.ai is a highly overvalued company. It has a market cap of over $2.3 billion and has never turned an annual profit. The company lost over $200 million in the trailing twelve months. Losses have been increasing considering that the firm lost just $33 million in 2019.
Watch here: https://www.youtube.com/embed/39QZOhb2xkg?feature=oembed
C3.ai stock price forecast
The daily chart shows that the AI stock price formed a triple-top pattern at $29.93 between February and March. It recently made a false breakout that pushed it to a high of $34.22. The stock has now dived and moved below the key support at $23.58 (August 11 high). It is also approaching the pivotal support at $20.29.
Therefore, I suspect that the shares will continue their sell-off in the coming days as short-sellers target the key support at $15.07, the highest point on November 10. This price is ~28% below the current level.
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