From Pets.com to Gamestop, there's never been a shortage of pop-and-drop stocks to teach traders a harsh lesson about the perils of investing in late-stage trends. Yet, hope springs eternal, and there's apparently a never-ending supply of new traders who haven't studied history or just can't stop themselves from buying the latest shiny object.

This isn't to suggest that C3.ai (AI 1.21%) in 2023 will suffer the same fate as Pets.com in 2000, but dismissing the parallels between the generative AI hype and the dot-com bubble would be a huge mistake. As a dyed-in-the-wool contrarian, I often have to suppress my instinct to lean bearish on whatever the crowd is talking about -- yet, in the case of C3.ai stock, the sense of dot-com déjà vu is impossible to ignore.

The beginning of the end?

I can't prove this, but I suspect that many retail traders simply bought C3.ai stock this year because the company's stock ticker symbol is AI. Presumably, they didn't dig deep enough to uncover the open secret that the company was named C3 IoT when the Internet of Things was supposed to be the market's next rainmaker and didn't rebrand as C3.ai until June of 2019.

In other words, companies can jump on bandwagons just like amateur stock traders can. Still, I won't blame investors for gobbling up C3.ai stock this year, as the temptation to buy anything and everything related to artificial intelligence (AI) has been nearly irresistible. Folks who bought the shares near the peak are in a precarious situation now, though, and they can only hope that C3.ai stock doesn't collapse like similarly AI-associated Upstart stock recently did.

That collapse may already be underway, however. As C3.ai stock rapidly retreats from its 52-week high of $48.87, the appeal of more diversified AI-friendly tech plays like Microsoft stock and Alphabet stock becomes all the more apparent. At least with Microsoft and Alphabet, they're income-positive and have price-to-earnings ratios, and their business models are broad enough to withstand the inevitable denouement of AI fervor.

In other words, having an enticing ticker -- or, for that matter, mentioning AI or LLMs a dozen times during a conference call -- might not be enough to keep a stock afloat in 2023's second half. But as the old saying goes, when you're in a bubble, you can't see the bubble.

Hypergrowth comes at a hyper-cost

Unsustainable hype cycles always end with a reality check of some sort. In the case of C3.ai, the company's reality check may have broader implications for a tech sector that has probably relied too heavily on the assumed future growth of the market for AI.

Rivers of red ran deep on Sept. 7, the day after C3.ai released its first-quarter fiscal year 2023 financial results. C3.ai stock lost around 12% of its value that day, sending a warning signal to would-be hype cycle riders everywhere.

Clearly, C3.ai's announcement of a new generative AI product suite wasn't sufficient to quell Wall Street's concerns about the cost of the company's revenue growth. As C3.ai posted yet another unsurprisingly unprofitable quarter, the company's revenue increased 10.8% year over year to $72.36 million; however, C3.ai's cost of revenue ballooned 72.8% to $31.81 million.

Adding to the market's disappointment, C3.ai retracted its previously published objective of achieving non-GAAP (adjusted) profitability by the end of fiscal year 2024.   The most that C3.ai's management can promise now, evidently, is "to be cash positive in Q4 FY 24 and in FY 25."

Sure, C3.ai stock could recover from here, but it could also fill the pre-AI-mania gap all the way back to $10. So, if C3.ai scrapping its profitability timetable doesn't deter you, maybe the company's exploding cost to conduct business will. At the very least, consult some seasoned investors who survived the bursting of the dot-com bubble before betting your hard-earned capital on a happy ending to a story that's all too familiar and will, quite possibly, end badly.