(Bloomberg) -- C3.ai Inc. reported quarterly revenue that fell short of analysts’ estimates and gave an outlook for an operating loss in the fiscal year that was worse than projected. The shares dropped about 9% in extended trading.

The fiscal-year loss from operations, excluding some items, will be as much as $135 million, C3.ai said in a statement Wednesday, compared with a previous forecast of as much as $100 million. Analysts, on average, estimated a loss of $87.6 million for the year, which ends in April.

The Redwood City, California-based company, which went public in 2020, is known for its data management and analysis software. In March, C3.ai introduced products with generative AI, software that creates text and images in response to a user’s prompts. The company on Wednesday said it would be spending more money than previously anticipated to take advantage of the intense enthusiasm for generative AI products. 

That investment in generative AI means “short-term downward pressure on free cash flow and profitability,” Chief Executive Officer Tom Siebel said during an earnings call Wednesday. The company continues to expect positive cash flow in the fiscal year ending in April 2025, he added.

C3.ai said it’s “in a prime position” to benefit from businesses embracing AI and is well-positioned to accelerate growth, achieve sustainable earnings and “establish a market-leading position globally.” Still, the forecast for a steeper-than-expected loss “illustrates the challenge in expanding market share,” Bloomberg Intelligence’s Sunil Rajgopal wrote.

Fiscal second-quarter sales increased 17% to $73.2 million. Analysts, on average, estimated $74.3 million. The adjusted loss was 13 cents per share in the period ended Oct. 31, compared with a loss of 18 cents a share expected by analysts.

Revenue was affected by new AI governance departments that were set up by customers, which slowed down the sales process, Siebel said. “It has added a step to the process, and it is lengthening the normal sale cycle,” he said.

The shares dropped to a low of $26.05 in extended trading after closing at $29.16 in New York. C3.ai, whose ticker is literally “AI,” gained 161% this year as Wall Street developed an insatiable appetite for the emerging technology.

Still, some investors remain skeptical that the company will live up to the hype. As of Wednesday, C3.ai was the second most-shorted US technology stock — based on a percentage of shares traded — with almost 36% of shares available to the public shorted, according to data from S3 Partners. Last month, the company cut workers and spoke of the need for cost savings.

European sales teams “did not perform well,” Siebel said in an interview on CNBC. “We implemented a reorganization there to get it back on track.”

Read More: AI Darling Criticized for Product Delays, Founder Tom Siebel’s Micromanaging

While the company said it closed 62 customer agreements in the quarter, the majority were pilots or under $1 million in total contract value, according to a presentation for investors. Twelve deals were for more than $1 million and one deal was above $5 million, the company said.

Last month, C3.ai announced its software would be sold on the marketplace of Amazon.com Inc.’s cloud computing unit, expanding its reach. C3.ai’s ability to convert software trials to long-term customers has been a key point of focus for Wall Street analysts. 

(Updates with comments from conference call beginning in the fourth paragraph.)

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