Appen Ltd (ASX: APX) shares had been strongly outperforming in 2023.
Right up until market open this morning.
At yesterday's close, shares in the artificial intelligence (AI) data services company had gained an impressive 31% year to date.
That strong four-month run for Appen shares came to an end following the release of the company's trading update.
Appen shares have tumbled 25.08% today on those results, leaving the stock essentially flat in 2023.
Why are Appen shares tumbling on the trading update?
The AI stock enjoyed five years of phenomenal growth after listing on the ASX in January 2015.
Early investors who sold at the 21 August 2020 highs of $40.08 per share will have booked gains of 6,500%, or more.
ASX investors who bought Appen shares at those highs are today nursing losses of 94%.
While things were looking up for the tech stock over recent months amid the emergence of ChatGPT, that hype hasn't shown up in the past four months' financials.
Appen reported a 21.4% year-on-year decrease in revenue, which dipped to $96 million. That saw gross profits drop 24.7% to $36 million.
And underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) in constant currency terms went from $8 million in the prior corresponding to period to a loss of $12 million in the first four months of 2023.
As you'd expect, Appen is looking to cut costs where it can. The company reported its previously identified cost savings of some US$10 million will be achieved in FY23.
Management also indicated "a series of significant measures" to achieve an additional US$36 million of cost savings would be achieved over the course of the financial year.
With those measures in mind, and Appen shares down more than 25% today, is the AI stock finally cheap enough to buy?
A bargain or a falling knife?
For some greater insight into that question, we defer to the analysts at Wilsons (courtesy of The Australian).
With Appen's operating costs increasing faster than its revenue growth in 2021, Wilsons supported the cost savings measures.
But the analysts noted this may leave the door open for the competition.
According to Wilsons:
We remain cautious however on whether this cost out program will result in a further deterioration in sales or underinvestment in its technology/product offering leading to a catch-up from competitors.
Wilsons now has an underweight rating on Appen shares with a $2.11 price target.
That implies an 11.7% downside to the current price of $2.39 per share.
