(Reuters) - Shares of C3.ai ( AI ), which makes software for enterprise artificial intelligence, slumped 20% in premarket trading on Thursday, as subscription revenue was squeezed by slow conversions of pilot customers.

High interest rates and an uncertain economy have led to cautious spending by enterprises, which have kept a tight leash on costs.

The company reported subscription revenue of $73.5 million for the first quarter, missing LSEG estimates of $79.1 million.

For the company, subscription revenue is comprised primarily of software licenses, Software-as-a-Service offerings, pilots and trials of C3.ai ( AI ) applications or generative AI, and consumption-based pricing for which revenue is recognized over time.

"C3.ai ( AI ) had weakness in subscription revenue which decreased by ~$6.5 million quarter-on-quarter compared with adding ~$9.5 million last quarter and ~$5 million in the same period last year," D.A. Davidson analysts wrote in a note.

Management said it continues to expect pressure on gross margins "due to higher mix of pilots, which carry a greater cost of revenue during the pilot phase of the customer life cycle".

"We also expect short-term pressure on our operating margin due to additional investments we are making in our business, including in our salesforce, research and development, and marketing spend," finance chief Hitesh Lath said in a post-earnings call.

The company, whose shares more than doubled last year, is set to lose more than $600 million from its market valuation of $2.97 billion, if losses hold.

For the reported quarter, the company posted total revenue of $87.2 million, an increase of 21%, beating estimates of $86.9 million.