What happened

Shares of C3.ai (AI -0.72%) rocketed 77.4% higher in January, according to data from S&P Global Market Intelligence. The artificial intelligence (AI) enterprise software provider is seeing increased enthusiasm from investors due to the hype around the new AI chatbots released by companies like Open AI. As of this writing, shares of the stock are up 144% year to date (YTD).

The company also just announced a partnership to integrate AI language models from companies like Open AI and Google into C3.ai's software applications, which investors took as a positive sign for the stock.

So what

C3.ai sells AI software to enterprises ranging from the U.S. military to agricultural companies to banks. For example, it just began deploying a five-year, $500 million contract with the missile defense agency for its software tools. While still a young company with somewhat unproven technology, plenty of organizations are turning to C3.ai to use AI to increase efficiency.

These software programs are about to get even better, too. In late January, C3.ai announced an upcoming product suite called C3 Generative AI that will give its enterprise customers a natural language interface to easily retrieve data across complex systems. In simpler terms, through partnerships with companies like Open AI and Google, C3.ai will now have advanced chatbots for its customers, hopefully saving them time and providing even more value for these organizations.

Investors have been eating up all things AI ever since the ChatGPT bot went viral. If you don't know what it is, ChatGPT uses complex AI programming to spit out answers in a realistic manner reminiscent of how a human writes. The venture capital industry is now pouring money into this nascent industry. It's not surprising then that C3.ai -- an AI company with the perfect ticker to encapsulate the mania -- popped over 100% last month alongside these developments.

Now what

C3.ai went through a rough 2021 and 2022; shares are still down almost 80% after this recent 100%+ pop. The stock is not cheap, either. With a price-to-sales ratio (P/S) of 10.3, the stock trades at a valuation of more than four times the average for the S&P 500. Its financials don't look too hot, with revenue growing only 7% year over year last quarter with profit margins of negative 100%. C3.ai needs to kick its growth and profitability into overdrive -- and fast -- or the stock will be headed much lower in the coming years.

Given the stock's volatility during the current AI mania, it is probably best to be conservative and keep C3.ai stock on the bench for now.