Shares of C3.ai (NYSE:AI) plummeted almost 16% as short seller Kerrisdale Capital flagged up accounting and disclosure issues in a letter to the AI company’s auditor, Deloitte. Throughout the market, investors are getting increasingly aware of the dangers of stock manipulation and false reporting, and Kerrisdale’s action has put further pressure on C3.ai.
C3.ai is an enterprise software company specializing in AI and the internet of things. Founded in 2009, it has grown rapidly since its initial public offering back in December of 2020. Recently, the stock has been on a huge surge as investors are intrigued by the possibilities of generative AI and ChatGPT, which have been huge investor topics in the Silicon Valley tech scene as of late.
However, investment management firm Kerrisdale has called out C3.ai’s “fictional accounting” and noted that their financial statements don’t reflect the underlying business fundamentals. Sahm Adrangi, the Chief Investment Officer of Kerrisdale, said in his letter that the AI company has used “highly aggressive accounting” in order to inflate its income statement metrics, meeting sell-side analyst expectations and hiding any significant deterioration in its operations.
The company’s founder, CEO and Chairman, Thomas M. Siebel, has weathered these allegations and defended C3.ai’s integrity and approach. Siebel has claimed that the company’s statements and reported numbers are accurate and consistent with its business performance. Additionally, C3.ai has said that Deloitte is comfortable with its financial statements, although the hedge fund has criticized the auditor.
Investors have been cautious and the stock price has reacted accordingly, but it remains to be seen if there is enough evidence to support the allegations. In the meantime, C3.ai remains an important player in the AI and IoT space and investors should remain aware of both the upsides and downsides as they make their trading decisions.