AI stocks are all the craze recently, including C3.ai, which has experienced a significant run-up. However, one short seller’s report took shares down sharply this week after alleging “serious accounting and disclosure issues” at the company. ⚠️
Kerrisdale Capital is a well-known hedge fund that often takes activist short positions. It initially released its bearish thesis towards C3.ai on March 6th, 2023. In it, Kerrisdale claims that the company is misrepresenting itself as an AI firm. Instead, it suggests management is simply positioning the company to benefit from investors’ current hype around the industry.
The firm points to past instances of C3.ai doing just that. For example, it was initially founded at C3 Energy but pivoted to the “Internet of Things” (IoT) during the crypto craze. And when that didn’t work out, it grabbed the ticker symbol $AI and pivoted its business to artificial intelligence.
However, the report says C3.ai doesn’t operate in that space. Instead, it sells basic enterprise data analytics and uses “a little” machine learning. That has nothing to do with the generative AI excitement around ChatGPT and other chatbots. 🤖
And when it comes to its core business, Kerrisdale says the company falls far short of competitors like Salesforce, Palantir, Snowflake, and others. 🔻
The stock initially fell but recovered throughout March, pushing above those pre-report levels last week. That was at least until yesterday when Kerrisdale Capital sent a letter to C3.ai’s auditor, Deloitte & Touche, and the U.S. Securities and Exchange Commission (SEC).
The letter outlined what it describes as “serious accounting and disclosure issues” at the company. It took aim at revenue recognition, highlighting C3’s unbilled receivables, which sit at 197 days-sales outstanding (DSO). The short-seller argues this level is unheard of for Software as a Service (SaaS) firms and raises major red flags. 😮
Could it be that the “AI” in its name stands for “accounting issues” rather than “artificial intelligence?” 🤔
We’re joking, of course. Butt these actions from Kerrisdale have clearly caught investors’ attention. And so far, the company has not responded. As a result, many investors are selling first and asking questions later.
$AI shares are down about 40% over the last two days. 🔻
