C3.AI (NYSE:AI) set an Investor Day for June 22 as analysts worried that the rush to artificial intelligence stocks is looking like the Dot-Com Bubble of a generation ago.
In premarket trading this morning, AI stock is at about $45 per share with a market capitalization of over $5 billion on fiscal 2023 revenue of $266 million. Other AI stocks like Palantir Technologies (NASDAQ:PLTR) are also trading at double-digit multiples to revenue.
So far, it’s the biggest tech companies that have benefitted most from the AI boom. Otherwise, very few examples of clear business success appeared thus far.
We Can Haz Bubble?
Some companies involved in generative AI today may justify huge valuations. Amazon (NASDAQ:AMZN) traded at nearly $300 during the peak of the 1990s Dot-Com Bubble. Those who stayed with it afterward saw huge profits.
But most companies from that era disappeared. Even those that survived, like Cisco Systems (NASDAQ:CSCO) and Intel (NASDAQ:INTC), are no longer what they were.
C3.AI benefits because its CEO, Thomas Siebel, went through that era and came out the other side. He did it by getting into the next big boom, database-driven applications. He founded C3.AI after selling that business, Siebel Systems, to Oracle (NASDAQ:ORCL).
Oracle is another business from that era that has since prospered. It didn’t return to its year 2000 peak of $45/share until 2018. But it now trades at $125 after investing heavily in cloud data centers. Oracle would also be a good candidate to buy C3.AI on weakness.
Most C3.AI revenue comes from what I call the “Machine Internet.” The use of sensors, networks, and software to dramatically improve industrial processes is a proven niche. Nearly one-third of C3.AI revenue reportedly comes from Baker Hughes (NYSE:BKR), the oilfield company. Short-seller Kerrisdale Capital accused C3.AI of irregularities in March. Since then, the stock has risen 56%, with most of the gain coming in the last month.
AI Stock: What Happens Next?
Every major business trend brings failures as well as successes for the ride. It’s unclear which way C3.AI will go, but for now, investors have confidence in its leadership.
As of this writing, Dana Blankenhorn directly held a LONG position in INTC and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
