Shares of C3.ai (NYSE:AI) plunged 20% in premarket trading on Thursday after the company reported disappointing subscription revenue, driven by slow conversions of pilot customers.
High interest rates and economic uncertainty have prompted enterprises to cut back on spending, impacting C3.ai's growth.
The company reported $73.5 million in subscription revenue for the first quarter, missing analyst estimates of $79.1 million.
C3.ai's subscription revenue includes software licenses, SaaS offerings, and pilots of its AI applications, with revenue recognized over time.
According to D.A. Davidson analysts, subscription revenue fell by approximately $6.5 million quarter-on-quarter, in contrast to a $9.5 million increase in the previous quarter.
Meanwhile, C3.ai's management warned of continued pressure on gross margins due to the higher costs associated with pilot programs.
CFO Hitesh Lath also noted short-term strain on operating margins as the company invests in its salesforce, R&D, and marketing.
Despite an overall 21% rise in total revenue to $87.2 million, which exceeded estimates of $86.9 million, the company's market valuation is expected to lose more than $600 million from its $2.97 billion value if the stock decline holds.