We came across a bearish thesis on C3.ai, Inc. (AI) on Substack by Stefan Waldhauser. In this article, we will summarize the bears’ thesis on AI. C3.ai, Inc. (AI)'s share was trading at $24.16 as of May 16th.

C3.ai continues to face deep operational and financial challenges despite an improvement in revenue growth to 24% over the trailing twelve months. The company's persistent inability to generate positive cash flow and its low Rule of 40 score of 14% point to a business model that remains fundamentally inefficient. Its net loss, hovering near 80% of revenue, highlights ongoing profitability concerns. A key vulnerability is its reliance on a small number of large customers, particularly Baker Hughes, which contributes about 20% of total revenue. With the contract up for renewal and potentially expiring by June 2025, any disruption could significantly impact C3.ai’s revenue base and stock performance.

The outlook for fiscal year 2025 remains bleak, with an expected $300 million loss on less than $400 million in sales. In light of these projections, the current $2.5 billion market capitalization appears unsustainable, especially considering the stock’s 30% decline year-to-date. The situation is further worsened by massive insider selling, including by CEO Tom Siebel and other executives, signaling a lack of internal confidence. Despite partnerships with Microsoft Azure and McKinsey, C3.ai has failed to establish a scalable, profitable business model even after 15 years. This has not gone unnoticed by the market—short interest remains elevated, reflecting bearish sentiment and a growing consensus that the stock remains overvalued. Unless C3.ai executes a significant strategic pivot or secures a game-changing contract, investors face substantial downside risk with limited near-term upside, making it a cautionary tale in the crowded AI software space.

C3.ai, Inc. (AI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held AI at the end of the fourth quarter which was 17 in the previous quarter. While we acknowledge the risk and potential of AI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.

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