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Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

C3.ai, Inc. operates as a software company. The Company focuses on developing, deploying, and operating enterprise AI applications. C3.ai serves customers worldwide.

<ul><li>In-line 2QFY26 revenue and EBIT beat on cost controls, but gross margin pressure from IPDs. </li><li>2QFY26 revenue of $75.1 million was essentially on target and cost controls drove a better-than-expected bottom line with EBIT of ($42 million) [Street = ($52 million)]. </li><li>However, non-GAAP gross margin was 54.5%, up 280 bps but more than 300 bps below Street expectations.</li></ul>

In-line 2QFY26 revenue and EBIT beat on cost controls, but gross margin pressure from IPDs. 2QFY26 revenue of $75.1 million was essentially on target and cost controls drove a better-than-expected bottom line with EBIT of ($42 million) [Street = ($52 million)]. However, non-GAAP gross margin was 54.5%, up 280 bps but more than 300 bps below Street expectations.

C3.ai, Inc.  - IPDs and the Gross Margin Squeeze

Thematic (Sector/Industry)

<ul><li>The WTR Consumer Index increased 2.7% in November, slightly outpacing the S&amp;P SmallCap 600, which increased 2.5%. </li><li>Relative earnings favored our index, with its 12-month prospective increasing 1.4% versus a decline of 0.3% for the S&amp;P SmallCap 600. </li><li>However, market sentiment favored the broader index, whose prospective P/E ratio increased 0.5x to 16.9x from 16.4x, while the prospective P/E ratio for our index only increased 0.2x to 15.6x from 15.4x. </li></ul>

The WTR Consumer Index increased 2.7% in November, slightly outpacing the S&amp;P SmallCap 600, which increased 2.5%. Relative earnings favored our index, with its 12-month prospective increasing 1.4% versus a decline of 0.3% for the S&amp;P SmallCap 600. However, market sentiment favored the broader index, whose prospective P/E ratio increased 0.5x to 16.9x from 16.4x, while the prospective P/E ratio for our index only increased 0.2x to 15.6x from 15.4x. 

WTR Consumer Index Edges Out S&P SmallCap 600 in Nov; Apparel & Accessories Lead Again

HighPeak Energy, Inc. operates as an exploration company. The Company offers petroleum engineering, geology, geophysics, drilling, and land financing services. HighPeak Energy serves customers in the United States.

<div><ul><li>HighPeak’s long-term focus is on responsibly managing capital outlays in tandem with a goal of reducing absolute debt levels over time. </li><li>On its earnings call on November 5, 2025, Hollis, who was elevated to the CEO role upon the retirement of Jack Hightower, laid out management’s operating guideposts in a variety of oil price environments.</li><li>In a base-case scenario with oil prices ranging from $60-70/bbl, management expects to maintain production levels and generate free cash flow that would be used to reduce debt. </li></ul></div>

HighPeak’s long-term focus is on responsibly managing capital outlays in tandem with a goal of reducing absolute debt levels over time. On its earnings call on November 5, 2025, Hollis, who was elevated to the CEO role upon the retirement of Jack Hightower, laid out management’s operating guideposts in a variety of oil price environments.In a base-case scenario with oil prices ranging from $60-70/bbl, management expects to maintain production levels and generate free cash flow that would be used to reduce debt. 

HPK: Adapting Operating Philosophy to Concentrate on Debt Reduction

<ul><li>This month’s AI landscape reveals a market at an inflection point, with record infrastructure commitments colliding with growing bubble anxiety. </li><li>Meta’s staggering $600-billion US buildout plan and Anthropic’s $50-billion data center announcements underscore that the compute arms race is accelerating, not cooling.</li><li>Yet caution signals are flashing, as CoreWeave trimmed its full-year guidance despite strong 3Q results, while Nvidia, CoreWeave, and Nebius Group all saw pressure on their stocks. </li></ul>

This month’s AI landscape reveals a market at an inflection point, with record infrastructure commitments colliding with growing bubble anxiety. Meta’s staggering $600-billion US buildout plan and Anthropic’s $50-billion data center announcements underscore that the compute arms race is accelerating, not cooling.Yet caution signals are flashing, as CoreWeave trimmed its full-year guidance despite strong 3Q results, while Nvidia, CoreWeave, and Nebius Group all saw pressure on their stocks. 

AI Flow Newsletter : Monitoring The "Currents" Of AI

<ul><li>Water Tower AI Flow Index. We monitor ~400 public companies across tech and AI for performance and AI-related news flow.</li><li>Last month (ending 11/30), the WTR AI Index was down 7.0% M/M versus the S&amp;P 500 Index (up 0.1%), the Russell 2000 Index (up 0.8%), and the Nasdaq Index (down 1.6%).</li><li>Software (28% of the index) was down 8.6%, while Semiconductor (12% of the index) was down 3.7%, Internet and Data Services (8% of the index) was down 20.9%, Other Tech (21% of the index) was down 5.5%, and Other Industries (31% of the index) was down 3.6%. </li></ul>

Water Tower AI Flow Index. We monitor ~400 public companies across tech and AI for performance and AI-related news flow.Last month (ending 11/30), the WTR AI Index was down 7.0% M/M versus the S&amp;P 500 Index (up 0.1%), the Russell 2000 Index (up 0.8%), and the Nasdaq Index (down 1.6%).Software (28% of the index) was down 8.6%, while Semiconductor (12% of the index) was down 3.7%, Internet and Data Services (8% of the index) was down 20.9%, Other Tech (21% of the index) was down 5.5%, and Other Industries (31% of the index) was down 3.6%. 

AI Flow Index : Sailing a Sea of Companies in AI