Why Stock Lost 18% in September

What happened

Shares of (NYSE: AI) took a dive last month after the "AI for the enterprise" company posted disappointing results in its fiscal first-quarter earnings report and dialed back expectations to post an adjusted profit by the end of fiscal 2024.

Additionally, the Federal Reserve's forecast to keep interest rates higher for longer pushed the stock lower toward the end of the month.

According to data from S&P Global Market Intelligence, the stock finished the month down 18%. As you can see from the chart below, the stock fell sharply on the earnings report at the beginning of the month and continued to slide from there.

^SPX Chart

^SPX data by YCharts.

So what

Shares of fell 12% on Sept. 7 after the company topped headline consensus figures but said it would no longer turn a profit in the current fiscal year as it continues to ramp up investment in what it sees as the large artificial intelligence (AI) opportunity in front of it.

Revenue in the quarter rose a modest 11% to $72.4 million, beating the consensus at $71.6 million, and its generally accepted accounting principles (GAAP) net loss was nearly as high at $64.4 million. On an adjusted basis, it posted a loss of $0.09 per share, which was better than estimates at $0.17 per share.

The analyst response to the report was tepid as Bank of America said that the company doesn't seem to be benefiting from AI tailwinds, and Deutsche Bank said the results were not enough to tamp down investor skepticism.

Later in the month, the stock fell again after the Federal Reserve said interest rates would remain elevated through the next couple of years, which is a headwind on growth stocks like

Shares rebounded over the last few days of the month as tech stocks bounced back on no specific news.

Now what

Looking ahead, the company expects only modest revenue growth for fiscal 2024, representing 15% growth at the midpoint. It also now sees an adjusted operating loss of $70 million to $100 million.

Explaining the change in guidance, CEO Thomas Siebel said, "The market opportunity is immediate, and we intend to seize it."

Still, a healthy dose of skepticism seems warranted, especially as revenue growth is modest and share-based compensation is high.

Investors should avoid the AI stock until revenue growth significantly accelerates or it turns profitable.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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