Kerrisdale Capital Isn’t the Only Short Seller Targeting C3.ai Right Now

Short interest data can provide invaluable investment insights. Short sellers tend to be sophisticated, high-conviction traders. If they’re shorting a stock, there’s usually a good reason they are doing so.

In this report, we are going to take a look at the short selling data on artificial intelligence company C3.ai (AI:US). It has recently been targeted by short seller Kerrisdale Capital, who published a scathing report on the company in March. Our data shows that Kerrisdale Capital is not the only short seller betting against the AI stock right now.

Kerrisdale Capital’s report on C3.ai 

Before we analyze the short interest data on C3.ai, it’s worth touching on Kerrisdale Capital’s report on the company.

In its report, the short seller states that:

• C3.ai is a cash-burning consulting and services business masquerading as a software company and its true value is a fraction of its current market capitalization.

• The AI company sells an expensive, hard-to-implement solution that is losing out to a plethora of alternative solutions.

• The company’s track record of new customer acquisition is poor.

• Management has used recent pricing changes and accounting tricks to distract the market from the company’s deteriorating results.

• C3.ai was overvalued even before its shares caught the generative AI hype wave, which added an unjustified $2 billion to its market capitalization in just a few weeks.

Kerrisdale Capital notes in its report that it is currently shorting the stock.

“We are short shares of C3.ai (AI), a $4 billion market capitalization enterprise software company that has risen from the ashes of its busted IPO based on the misconception that its self-proclaimed “AI leadership” somehow positions it to benefit from Silicon Valley’s current tech theme du jour: generative AI as represented by media obsession ChatGPT. We believe these speculative flames won’t burn bright much longer, as the realities of C3’s poor customer traction, failing sales partnerships, and financial pressures will catalyze what is likely to be a painful reality check.”

Kerrisdale Capital

Short interest data

Now, the short interest data here reveals some interesting insights.

For a start, C3.ai’s short interest is very high at present. Currently 43.24 million shares are on loan. That represents around 50.64% of the free float.

Secondly, the utilization rate – a measure of demand from short sellers – is also very high. Currently, it’s at 100%, which indicates that short sellers are shorting every share they can get hold of.

Third, short interest here spiked long before Kerrisdale’s report. Looking at the chart below, we can see that short interest began rising back in late January. This was around the time that AI stocks – which have soared this year – started to gain traction.

Putting this all together, the data suggests that there are many short sellers targeting C3.ai shares at present.

Approach with caution

Now, C3.ai has defended itself against Kerrisdale Capital’s statements. A spokesperson for the AI company has said that the short seller’s report is “highly creative”. So, Kerrisdale’s research may be off the mark.

However, we can’t ignore the data here. Ultimately, it indicates that many sophisticated investors see downside risk right now.

Given the high level of short interest, we think caution is warranted towards the stock at present.