What happened

Shares of C3.ai (AI -0.40%) were jumping again Friday even though there was no company-specific news regarding the artificial intelligence-focused software-as-a-service business.

Instead, the reason for its gains seems to be a phenomenon known as "window dressing" -- the practice of funds buying top-performing stocks just before a quarter ends so they can show them on their books and tell investors that they own them.

As of 3:31 p.m. ET, the stock was up 19.9%.

So what

Following the public launch of ChatGPT late in 2022, artificial intelligence (AI) has become the buzziest topic on Wall Street, and AI stocks have soared, with C3.ai nearly tripling year to date.

C3.ai has become something of a bellwether for AI stocks, as there aren't a lot of pure-play options in that arena.

Given all the fervor around C3.ai and AI in general, some investors may be asking fund managers if they have the stock in their funds' portfolios -- and if they don't, asking them why not. If a fund reports C3.ai as a holding as of the end of the first quarter, it also allows that fund to appear at first glance as if it benefited from the stock's strong gains through the period, even if it didn't.

Friday's gains for C3.ai may not have come with any direct news about the company, but they did come on high volume, another possible indication that fund managers are buying the stock.

Before 3 p.m. ET, nearly 50 million shares had been traded, which amounted to more than half of the float. That was about 150% higher than its average trading volume over the last 90 days. It was also its highest trading volume day since March 3 -- the day after it released its latest earnings report.

Now what

There's no question that C3.ai has been one of the best-performing stocks of the year, but those gains have been driven almost entirely by hype. 

In its recent fiscal third-quarter 2023 report, the company actually reported a decline in revenue, and it doesn't seem close to profitability. While management touted increased interest in its products in recent months and announced a new generative AI product suite, now that the stock has nearly tripled over the last three months, those positives seem to be priced in.

With Friday's gains coming essentially on hot air, it's hard not to see the stock as overvalued, as its price-to-sales ratio is now 13, and revenue is moving in the wrong direction.