Here’s why C3.ai stock fell 13% last month

Actions of C3. have (AI 0.42%) fell 12.8 percent in August, according to data from S&P Global Market Intelligence. Shares fell ahead of the quarterly earnings report as investors adjusted their expectations for AI software.

August got off to a rough start for AI stocks

AI shares showed overall weakness in the first week of August. As of Microsoft (MSFT 1.00%), Alphabet (GOOG -1.57%) (GOOGL -1.33%), Nvidia (NVDA 3.54%)and Palantir (PLTR 14.08%) all fell sharply in the first seven days of the month. C3.ai fell 12.5% ​​during that period.

AI Data by YCharts.

Popular AI stocks were struggling against macroeconomic pressures. The weak economic data has raised fears around the world about the risk of recession. Investors have applied skepticism to their growth forecasts, particularly for AI shares that have risen to expensive valuations over the past two years.

When risk appetite fades, popular tech stocks tend to struggle. C3 is caught up in the dynamics of its industry, so macro forces weighed heavily on the stock in the first week of August.

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The industry recovered some of these losses in the second week of the month. Palantir posted a record quarter that beat analysts’ estimates for sales and earnings. The company’s commentary on demand for AI software fueled optimism for the industry as a whole, which provided a welcome reversal of downward pressure.

The rally continued after Federal Reserve Chairman Jerome Powell indicated interest rate cuts were likely later this year. Lower rates encourage investor risk-taking and should reduce pressure on macroeconomic growth. With recession fears making financial headlines, the prospect of imminent rate cuts has been great news for equity valuations, especially growth stocks. C3.ai didn’t completely erase its previous monthly losses from this comeback, but some damage was reversed.

Market momentum sent C3.ai lower ahead of the September earnings call

Unfortunately, conditions deteriorated again to close out the month. Some of the decline appears to have coincided with other AI stocks, but the swoon at the end of August marked a departure, with C3 falling more than its peers.

The company reported earnings in the first week of September, so the moves in late August likely signaled a wave of investors looking to reduce exposure to the stock ahead of this big news. It’s common for stocks to become volatile ahead of earnings reports, and this is especially true for growth stocks that may be dealing with the whispers of an investor community hearing negative rumors.

C3 reported better-than-expected revenue and earnings, supported by top-line expansion of 21%. Wall Street forecasts and recommendations remained largely unchanged. However, several prominent analysts have cut their price targets. Taken together, this is compelling evidence that analysts are building wiggle room as momentum cools for AI stocks. Real-world demand for AI software may not be strong enough to support the stock market hype.

C3.ai delivered good but not great results, which wasn’t enough to prevent some losses. The stock’s price-to-sales ratio was just under 10 at the start of August, and has since fallen to 8.

Investors are in the middle of a maintenance process as they adjust their expectations for the AI ​​industry, and C3 fell victim to that adjustment in August despite generally positive news throughout the period.