What happened

Shares of Chinese holographic technology company WiMi Hologram Cloud (NASDAQ: WIMI) absolutely soared on Friday, after hologram technology was showcased by prominent businessman Jack Ma. As of 2:30 p.m. EDT, the stock was up an eye-popping 147%.

It hasn't been on the market long, but WiMi Hologram Cloud stock is quickly gaining a following. 

WIMI Chart

WIMI data by YCharts

So what

WiMi Hologram Cloud began in 2015. It sees hologram technology as having a plethora of applications, including video communication, social networking, and gaming. Of course, holograms are nothing new; the tech has been around since the 1960s. However, holograms need powerful components to keep the image from lagging. And that's especially challenging over a wireless connection.

However, 5G technology might be fast enough to finally make holograms viable. And because of this, according to a press release from WiMi Hologram Cloud, the global holographic augmented reality market is set to grow at a terrific pace. From now through 2025, hologram hardware is set to grow at a 68% compound annual growth rate (CAGR), while hologram software is expected to grow at a 69% CAGR.

To underscore just how far this technology has come, former Alibaba chairman Ma appeared at the World Artificial Intelligence Conference. However, because of the COVID-19 pandemic, he couldn't appear personally. Rather, he gave his presentation via a holographic image. And it seems this was enough to send WiMi Hologram Cloud stock soaring.

A hand draws an upward arrow on a stock chart displayed on a transparent touchscreen.

Image source: Getty Images.

Now what

It's surprising to see an obscure stock like WiMi Hologram Cloud popping this much on news like this. It seems investors are merely looking at blistering growth in the hologram industry, but I wonder how many actually know how the company generates its revenue.

According to its Securities and Exchange Commission filings, WiMi Hologram Cloud generates the bulk of its revenue by creating advertising campaigns for its clients. These ad campaigns are then disseminated by various means -- including on social media app TikTok. Over 90% of WiMi's contracts are based on delivering on a specific cost per mille (CPM). 

For this reason, I encourage investors to use extreme caution with this company. Perhaps the hologram market is set to explode. But as an advertising company, WiMi Hologram Cloud isn't guaranteed to capture the upside.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.