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What Happened?
Shares of artificial intelligence (AI) software company C3.ai (NYSE:AI) fell 6.7% in the morning session as markets continued to struggle following the broad selloff triggered by weak economic data in the previous week. On Friday, February 21, 2025, the S&P 500 dropped 1.7%, and the Nasdaq fell 2.2% after PMI numbers showed the U.S. services sector contracted, and the University of Michigan's consumer sentiment index came in below expectations.
Adding to Wall Street's anxiety, rumors swirled that Microsoft is trimming some data center projects, raising concerns that AI-related investments may get a little too bloated.
TD Cowen analyst Michael Elias flagged three key findings from his research. He noted that Microsoft "1) cancelled leases in the U.S. totaling 'a couple of hundred MWs' with at least two private data center operators, 2) has pulled back on the conversion of SOQ's to leases, and 3) has re-allocated a considerable portion of its international spend to the U.S."
Jefferies analysts see this as more of a regional spending adjustment, adding that Microsoft executives "strongly refute" any major shift in their data center strategy.
Investors' attention now turns to Nvidia's upcoming earnings report, a crucial barometer of AI infrastructure demand. The chip giant's Q4 2024 results and forward guidance will be closely scrutinized for signals on whether AI spending remains strong or is beginning to taper off. With so many moving pieces, investors are bracing for a volatile week ahead, while hoping for clarity.
The shares closed the day at $26.88, down 5.7% from previous close.
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What The Market Is Telling Us
C3.ai’s shares are extremely volatile and have had 33 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 12 months ago when the stock gained 24.8% on the news that the company reported third-quarter results that exceeded analysts' revenue, free cash flow, and EPS estimates. Revenue for the next quarter also came in roughly in line with expectations, while the full-year revenue guidance came in slightly ahead. The results showed that the company's transition to a consumption-based model is going as planned despite the anticipated short-term headwinds to remaining performance obligations (RPO - leading revenue indicator). Due to the anticipated headwinds, RPO and billings fell below expectations during the quarter.