2 Popular AI Stocks to Sell Before They Fall 43% and 67%, According to Certain Wall Street Analysts

Key Points

• Certain analysts are spotting major challenges in the growth narratives of two leading AI companies.

• C3.ai's revenue slump and SMCI's deteriorating profitability are raising concerns about their long-term growth stories.

• 10 stocks we like better than C3.ai ›

C3.ai (NYSE: AI) has been one of the most polarizing names in the enterprise artificial intelligence (AI) space. Once hyped for its full-stack agentic AI platform and over 130 turnkey applications spanning multiple industries, the company is grappling with contracting revenue, and investors are concerned.

Super Micro Computer (NASDAQ: SMCI), by contrast, positioned itself as a specialist in high-end servers and storage systems, capitalizing on the surge in demand for AI-optimized infrastructure. However, while the revenue growth trajectory has been impressive, profit margins remain weak. This has increased skepticism among some analysts.

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In this backdrop, Eric Heath at KeyBanc set a price target of $10 per share for C3.ai, implying a 43% downside from its current share price of $17.80 (as of this writing). J.P. Morgan analysts have also cut C3.ai's target price from $23 to $10. Regarding Supermicro, Mehdi Hosseini at Susquehanna reiterated its bearish stance, maintaining a target price of just $15, which suggests a steep 67% downside from its current price of approximately $44.60.

Here's why some analysts are turning bearish on these once high-flying AI stocks.

C3.ai

C3.ai is helping several high-profile clients, including the U.S. Army, Nucor, and Huntington Ingalls Industries, in their enterprise AI initiatives.

However, the business is now showing signs of strain. In its first quarter of fiscal 2026 (ended July 31), revenue fell 19% year over year to $70.3 million, marking its first revenue miss since going public. The company witnessed a dramatic sequential decline of $15.9 million in demonstration license sales. These demonstration licenses are non-recurring and sold at the request of distributors and large strategic customers to demonstrate the utility of C3.ai's software.

However, this drop highlights a deeper issue -- the waning interest in the company's offerings among its enterprise clients. Professional services contributed just $10 million in revenue and remain heavily concentrated in prioritized engineering work, which is mainly non-recurring and has limited scalability.

C3.ai's profitability is also deteriorating. The company reported a $57.8 million non-GAAP (adjusted) operating loss, a significant deterioration from the $16.6 million loss in the same quarter of the prior year. The company also burned $34.3 million in free cash flow, a significant disappointment considering the $7.1 million free cash flow generated in the same quarter of the prior year. Non-GAAP gross margin has also declined by nearly 18 percentage points year over year to 52%, primarily due to higher costs associated with early-stage deployments and weaker economies of scale.

Founder and CEO Tom Siebel described the quarter as "completely unacceptable in virtually every respect," attributing the miss to "poor sales execution and poor resource coordination" amid broad leadership churn. The company has now restructured its global sales and services organizations and installed a new CEO, which may help improve execution in the coming quarters. However, since the company has withdrawn its previous full-year fiscal 2026 guidance, it may highlight limited revenue visibility even for management.

Despite these numerous challenges, C3.ai still boasts a $2.4 billion market cap and trades at 6.5 times sales. A few analysts consider this valuation unjustified for the company, given its obvious growth issues. Although the company claimed to be involved in 60 large-scale customer engagements across industries, execution remains the key challenge. Unless the company succeeds in converting these engagements into profitable, recurring growth, the stock could remain vulnerable to further value loss in the coming months.

Super Micro Computer

Super Micro Computer has become a key player in the AI infrastructure landscape, powering the development of massive data centers worldwide. The company's revenue increased 47% year over year to $22 billion in fiscal 2025 (ended June 30). However, the recent earnings call also unveiled significant challenges. The company's revenue of $5.76 billion in the fourth quarter of fiscal 2025 fell short of consensus estimates of $5.98 billion. Non-GAAP margin was 9.6% -- well below its long-term target of 14% to 17%.

Management attributed the revenue shortfall to capital constraints that limited its ability to scale production and delayed revenue recognition due to specification changes from a major customer. While those issues seem temporary, Supermicro's dependence on the launch cycles of partners like Nvidia and Advanced Micro Devices is adding volatility to its demand pipeline. This is evident, as some customers are delaying purchases until Nvidia's Blackwell architecture based GB300 systems become available. This also increases the risk that the company will miss its fiscal 2026 revenue guidance of $33 billion.

Profitability is also becoming a challenge. Operating expenses rose 29% year over year to $239 million in the fourth quarter. Inventories have also swollen to $4.7 billion.

Management expects its recently launched Data Center Building Block Solutions (DCBBS) to simplify customers' AI data center deployments and reduce the time to build high-performance, energy-efficient data centers to a matter of months. The company expects to improve its profit margins by selling complete rack-scale systems and services in DCBBS. However, the actual impact cannot be predicted, as SMCI lacks sufficient experience to forecast the effect of this product on its overall financials.

SMCI trades at roughly 16.9 times forward earnings, which does not seem justified, especially when profitability is depressed. The company is also still working to strengthen its internal controls over financial reporting. Several analysts see limited room for error. Hence, it makes sense for investors to wait on the sidelines for the next few months.

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.