C3.ai, Inc. (AI) shares fell sharply during intraday trading, declining by 5.02%. The drop comes amid growing concerns about the impact of geopolitical tensions on the funding environment for artificial intelligence companies.

According to market analysis, the ongoing conflict in Iran is creating headwinds for AI infrastructure development. Rising oil prices could drive inflation higher and lead to increased interest rates, both of which are unfavorable for AI construction projects burdened with debt. Companies would face higher building costs and interest expenses in such an environment.

The situation is particularly challenging as persistent inflation has dashed market expectations for further Federal Reserve rate cuts this year. If the conflict prolongs, the substantial U.S. government deficit is expected to widen further, potentially driving interest rates even higher and squeezing funding sources for the AI sector.