The stock market resumed its climb at midday on Thursday, with the Federal Reserve's latest interest rate pause proving to have only a short-lived influence on investors' increasingly bullish sentiments. Shortly before noon, major market benchmarks were up by as much as 1%.

AI stocks have played a major role in helping to drive the markets higher. Pure technology companies have gotten a lot of the attention from AI investors, but there are also businesses that are putting artificial intelligence to work in innovative ways.

One company that went public in 2022 as a special purpose acquisition company (SPAC), Symbotic (SYM -2.13%), has seen its share price jump fivefold in just seven months, and it continued to power higher to all-time record levels on Thursday with a 8% gain as of just after noon ET. Yet even with strong growth, could it be that the former SPAC's share price has anticipated an unrealistic amount of future success? 

Revolutionizing warehouse automation

Symbotic has aimed to provide an advanced solution to the challenges that retailers and manufacturers face with handling their warehouse inventories. Increasingly, companies handle different products within the same facility, and labor cost pressures have forced businesses to look at automation as a way of increasing productivity.

Symbotic has put together a comprehensive platform that melds several different types of technology. Driverless vehicles are able to take incoming products and bring them into a distribution center for sorting by robots powered by artificial intelligence. From there, bots handle storing the products in appropriate locations within the warehouse. Driving the entire operation is sophisticated AI software, which can provide information to the owner about current inventory levels and respond to orders from stores or directly from end-customers.

In Symbotic's view, its product has a huge value-enhancing proposition. With a $50 million module purchase, a Symbotic customer can cut inventory by $50 million and produce savings of $10 million per year. Multiply that by a 25-year useful life, and $250 million in reduced costs provides impressive returns on investment. Moreover, outbound deliveries become more efficient, with faster inventory turns and fewer problems with items being out of stock.

An ambitious valuation

Symbotic came public just over a year ago, with its merger with SVF Investment Corp. 3 marking its debut on the Nasdaq Stock Market. Since then, the share price has been volatile, but since late 2022, the stock has jumped from just under its $10-per-share SPAC price to climb above the $50 mark.

Looking at Symbotic's client list, it's easy to understand shareholders' high expectations. Major retailers like Walmart, Albertsons, and privately held C&S Wholesale Grocers have all started using the system. Moreover, Symbotic anticipates going beyond its early focus on grocery and general merchandise retailers to add markets like home improvement retail, auto parts, and apparel, as well as expanding geographically.

However, the challenge for Symbotic will be growing into its valuation. With a market cap approaching $29 billion and revenue just below $900 million, Symbotic trades at more than 30 times trailing sales. Fiscal second-quarter revenue for the period ended March 31 soared 177% year over year, but sequential sales gains in more recent quarters have suggested that Symbotic's growth rate could slow abruptly without major new deals. Moreover, Symbotic isn't profitable, has negative free cash flow, and has relatively low gross margins that will need to improve over the long run.

AI will be able to solve many problems, but it won't necessarily mean huge profits for every company that puts it to work. Symbotic has plenty of promise, but its soaring share price shows just how much investors are willing to pay up in order to capitalize on the AI trend.