RC365 stock (LSE: RCGH) has risen from almost total obscurity to become one of the UK’s top-performing shares. Even after a recent 35% haircut, the share price is still up a jaw-dropping 363% in just under two months.

Until July, I’d never heard of this Asia-focused provider of payment gateway solutions and IT support. But it doesn’t surprise me that a penny stock linked to artificial intelligence (AI) — which RC365 has been presented as in various online articles — has surged so dramatically.

After all, this type of thing does happen periodically. In the late 1990s, the share price of basically any firm linked to the internet went to the moon. A couple of years back, any stock associated with crypto went into overdrive. Today, it’s the turn of AI, which some estimate could become a $1.3trn market by 2030.

I’ll admit, RC365 has a great AI-sounding name, as it reminds me of the robot R2-D2 from Star Wars. But is it actually an AI stock? Here’s my take.

RC3.0

On 1 June, RC365’s subsidiary Regal Crown Technology signed a memorandum of understanding with Hong Kong-listed Hatcher Group.

RC365 said they “will collaborate with each other to bring the possible implementation of AI solutions and other intelligent prediction algorithm models into the development and optimization of Regal Crown’s proprietary applications“.

Then on 23 June, it confirmed a contract with a subsidiary of Hatcher Group called APEC Business Services. This is to develop and upgrade the existing RC2.0 wealth management solutions app.

APEC will pay the company HK$15m (£1.5m) and the two of them will each receive 50% of revenue generated from the upgraded app. Upon launch, this RC3.0 version will offer users enhanced features and functionalities in digital banking.

A telling omission

In late July, the company reported its annual results for the 12 months to 31 March. Year-on-year revenue soared 109% to HK$16.9m (£1.6m).

However, as my colleague Edward Sheldon recently noted, AI wasn’t directly referred to once in the report. CEO Chi Kit Law did mention “smart algorithm technology“, but nothing more.

Presumably, if the company’s growth was actively being driven by AI in some way, management would be shouting that from the rooftops. After all, according to Reuters, the words ‘AI’ or ‘artificial intelligence’ were mentioned 827 times on 76 separate US quarterly conference calls up to the end of July. That was 105% more than in the same period last year.

So, I don’t think we can really call RC365 an AI stock yet. And if I’d bought the shares hoping that the firm becomes the next Nvidia, I’d be questioning my investment thesis right now.

On the sidelines

Whether RC365 goes onto become a fully-fledged AI firm is unknown at this point. But what is much more certain is that the valuation of the stock is extreme.

On a price-to-sales (P/S) multiple, it isn’t far off 100. That’s over double the P/S ratio of Nvidia, which is undeniably a thoroughbred AI stock. There would be no ChatGPT as we know it without Nvidia’s technological input.

RC365’s revenue will have to accelerate rapidly for it to justify its current valuation. So, I’ll remain a curious bystander watching things play out while I put my money to work elsewhere.

The post Is RC365 stock really linked to the artificial intelligence (AI) revolution? appeared first on The Motley Fool UK.

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Ben McPoland has positions in Nvidia. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.