The Nasdaq Composite (NASDAQINDEX: ^IXIC) has soared in 2023, and excitement about artificial intelligence (AI) has played a key role. Many of the biggest companies in the stock market have ties to AI, and the massive upticks in demand that they've seen have led investors to bid their share prices to new heights.
However, AI companies still have to deliver solid financial results in order to keep their shareholders optimistic. When a company falls short of high expectations, its share price can suffer big declines. That's what's happening with AI stocksC3.ai (NYSE: AI) and Sprinklr (NYSE: CXM) on Thursday morning, and investors are taking a closer look at their prospects for tapping into long-term AI growth trends.
C3 can't keep up with high expectations
Shares of C3.ai fell 10% just after the open of regular trading on Wall Street Thursday morning. The enterprise AI application software specialist reported fiscal second-quarter financial results for the period ended Oct. 31 that didn't show the level of reaccelerating growth that investors had wanted to see.
C3's revenue climbed 17% year over year to $73.2 million, but the company believes that its relatively slow growth rate stems from its transition to a consumption-based pricing model. Customer engagement, which broadly measures the number of clients using C3 services actively, jumped 81% to 404. C3 closed 62 new agreements during the three-month period, including one with drug giant GSK. The company's business with the federal government has become a crucial driver of growth, with total bookings from the segment nearly tripling from year-ago levels.
CEO Thomas Siebel said that the company saw "unprecedented interest and traction" in generative AI products, which it sees as a potential $1.3 trillion market by 2032. C3 is positioning itself to take maximum advantage of enterprise AI opportunities and has already seen its pipeline of AI projects jump by more than half in just three months.
Yet the company's guidance for between $74 million and $78 million in revenue for the coming fiscal third quarter suggested only minimal sequential growth in sales, and it continues to lose considerable amounts of money even on an adjusted basis. Those two things need to get fixed before C3's stock is likely to produce sustained gains.
Sprinklr leaves shareholders drenched
Elsewhere, shares of Sprinklr plunged more than 30% in the opening minutes of trading on Thursday. The enterprise cloud software and AI-powered contact center services company reported lackluster results in the fiscal third quarter that ended Oct. 31.
On its face, Sprinklr put in a respectable showing. Sales climbed 18% year over year on a 22% gain in subscription revenue, and remaining performance obligations were higher by 34% from year-ago levels. The company even managed to generate positive cash flow of nearly $16 million during the quarter, and adjusted earnings of $0.12 per share were up dramatically from 12 months earlier.
However, investors are coming to grips with the fact that revenue growth is slowing. After climbing 25% last year, sales are projected to be between $725.5 million and $727.5 million this year. That would represent growth of around 17% to 18%. Even above-consensus calls for adjusted earnings of $0.36 to $0.37 per share weren't enough to satisfy shareholders.
Sprinklr has worked hard on artificial intelligence, launching conversational AI in its customer service bots for clients. Nevertheless, investors have extremely high expectations for growth in the industry. It'll take more effort for Sprinklr to keep up and reach its full potential.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends C3.ai and GSK. The Motley Fool has a disclosure policy.
