AI stocks tumble after short-seller attack on C3.ai

(Reuters) -Artificial intelligence (AI) stocks fell on Wednesday after a short seller alleged accounting issues at retail darling C3.ai Inc, dampening investor interest in the group of small companies that have wildly outperformed the market this year.

C3.ai was down 12% and its stock was also trending on investor-focused social media platform Stocktwits.com. Security firm Guardforce AI fell more than 18%, while data analytics firm BigBear.ai lost 16% and conversation intelligence company SoundHound AI declined 9%.

C3.ai shed a quarter of its value on Tuesday, cutting its market valuation to $2.80 billion, after Kerrisdale Capital said the firm has "serious accounting and disclosure issues" in a letter to its auditor Deloitte & Touche LLP.

Kerrisdale had disclosed its short position in C3.ai last month and accused the company of "poor customer traction, failing sales partnerships and financial pressures."

The AI company denied the allegations in an emailed response to Reuters.

Canaccord Genuity analyst Kingsley Crane said "there is no evidence of any real wrongdoing or fraud in the short-seller report, but it raises some concerns and investors could benefit from more clarity."

"It is not necessarily a systemic risk and should not affect other AI stocks near-term. These stocks are traded on (AI) excitement."

C3.ai's stock has more than doubled in value this year thanks to a surge of investor interest in AI-related companies after the viral success of OpenAI's ChatGPT. That compares with a 6.8% rise in the benchmark S&P 500 index.

The rally has, however, slowed in recent days as concerns rise over the use of AI and countries move to regulate its applications.

On Tuesday, U.S. President Joe Biden said it remained to be seen whether AI is dangerous, but underscored that technology companies had a responsibility to ensure their products were safe before making them public.

(Reporting by Tiyashi Datta and Yuvraj Malik in Bengaluru; Editing by Anil D'Silva and Shailesh Kuber)

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