C3.ai stock drops on downgrade from Wolfe Research analysts

The Yahoo Finance Live team discusses a decline in C3.ai stock.

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SEANA SMITH: Starting it off with C3.ai, the stock taking a pretty big hit today. You can see it off nearly 11%. The drop following a downgrade from Wolfe Research, now cautioning investors about chasing this year's massive rally in shares. It has certainly been an investor favorite over the past several months, really riding the AI hype that we have seen pacing some of the tech gains so far this year.

But Wolfe analyst Joshua Tilton is warning of slower growth, saying that C3.ai's recent switch from a subscription based pricing model to a consumption based pricing model is going to be a drag to revenue growth, at least that's what they believe.

Now earlier this month, shares of C3.ai were also hit after short seller Kerrisdale Capital alleged some accounting issues with the company. C3.ai, though, disputed that, so helping cushion some of those initial losses.

But Diane, when it comes to the fact that the hype around AI, whether or not that's warranted, whether or not it's going to be the next metaverse, that certainly is what the Street seems to be debating at this point.

DIANE KING HALL: Yes. And is this a stud turned to a dud now? I mean, has some of the luster come off of a high flying stock? It's certainly seen a major run up. And now some of the shine is coming off. You have all-- this, I mean, Wall Street's a popularity contest. Look at the pandemic high flyer. So right now, we're in that AI generation. And is some of that shine coming off right now? That's what appears to be happening, at least today.

DAVE BRIGGS: Come on. You gotta bet big on C3.ai. My read of the Wolfe Research note is that they're more concerned about a cut down, a slowdown in spending in the short term, as the economy pulls back a little bit. But this is, if you're betting on C3.ai, you're not worried about '24 or '25, I hope. If that's your play, you should be betting on 2030, 2035. And ultimately, that's a big first mover advantage for them.

I still think a lot of upside in the long run. Their point is notable about short-term cutbacks in spending, though.

SEANA SMITH: Yeah, but I also wonder just how much of their gains, especially since the start of the year, is simply because they have AI in the name of their company.

DIANE KING HALL: Yes, exactly.

SEANA SMITH: If it was just named C3--

DIANE KING HALL: That part. That part.

SEANA SMITH: --and they did the exact same thing and had the footprint in AI. Talk about the fact that investors sometimes get caught up in that. It's a side show. It's turning out maybe that could be some of the big drivers here.

DIANE KING HALL: I'm telling you, it is. It's a popularity contest on Wall Street.