(FORTUNE Magazine) – You'd think this would be a terrible time to be running a Net company. Stock prices have been in the tank, pundits are proclaiming the bursting of the dot.com bubble... So what's with Dave Peterschmidt?

"We're having fun," says Peterschmidt, CEO of a money-losing, $5-billion-market-cap Internet company called Inktomi. "Business is good."

This isn't bravado: In the first week in August, as Net stocks were crashing all around, Inktomi sold $300 million in shares in a secondary offering and could have sold twice as much. It has a pile of cash and a stock price that, while down from its springtime highs, hasn't fallen nearly as much as Web bellwethers Yahoo or America Online. Most important, in a sector lousy with low-tech businesses that stake everything on a brand name, Inktomi is an honest-to-God technology company that's going to make money no matter who wins the wars for Web dominance. Of course, whether it will ever make enough to justify its stock price remains a big, scary "if." But this is an Internet company. Whaddaya expect?

Inktomi is best known--if it's known at all--for running the search engines behind Yahoo, HotBot, Snap, and a bunch of other portals. But its ambitions are much grander: Inktomi is trying to position itself as the Intel of the Net. It will concentrate on the software guts and leave the sleek design and clever marketing to others.

The strategy goes back to the company's beginnings, when a young professor at the University of California at Berkeley named Eric Brewer and his even younger student Paul Gauthier built a search engine that used a network of workstations (instead of an expensive supercomputer) to troll the Net. Word quickly got out that Inktomi, as they called it (after a mythical Plains Indian spider), could find stuff fast. It made Wired magazine's then-influential "Tired/Wired" list in December 1995 (Lycos was "tired," Inktomi "wired"), and two months later Brewer and Gauthier went into business. But they didn't do what everyone expected--try to build an online brand around their search engine. "We didn't want to do ad sales," says Brewer, now Inktomi's chief scientist and biggest shareholder. "We wanted to work on technology." So they ran search engines for other people, starting with Wired's HotBot. This is a steady business--Inktomi charges by the search--but it's never going to be huge. So when Peterschmidt, the former chief operating officer of database maker Sybase, took over in July 1996, he decided the company had to try something new.

That something was caching software, which cuts down on Internet traffic jams by storing oft-viewed Web pages closer to the user, on servers installed at Internet service providers like AOL. Inktomi is now the leading caching provider, according to the Internet Research Group, with a one-third market share in 1998. And caching is moving from obscure niche to essential pillar of the Internet infrastructure: Any Web content provider that wants to ensure that its pages or videos arrive safely on Net users' screens will eventually rely on it. "This is an application that, once you put it in, you can't take it out," Peterschmidt says. "This is analogous to the early days of Intel winning a chip contract with Compaq."

Caching now supplies the bulk of Inktomi's revenue, which was $19 million in the spring quarter, up 212% from a year before. The company is still losing money--$6 million in the last quarter--but revenues are rising twice as fast as expenses.

That's nice, but it's still a long, long way from Intel-like dominance or profits. To get there, Peterschmidt says, "we have to continue to develop new applications and bring them onto the market at a rapid rate, and we have to build a global corporation to deliver and support those applications." A tall order. Inktomi has recently rolled out a shopping engine that lets users buy products from scores of e-commerce sites, and a directory engine that constructs Yahoo-style Web directories with minimal human labor. But building a 400-employee company into a global power is fraught with danger, especially with competitors like Cisco and Novell hoping to poach Inktomi's existing business.

Inktomi's fans aren't daunted. "I feel very comfortable with our investment," says Emeric McDonald, co-manager of Amerindo Technology Fund, a big Inktomi shareholder. Amerindo owns a bunch of Net companies, so McDonald's idea of comfort may be different from yours. But Inktomi does seem to have a fighting chance, which in this summer of Net investors' discontent is saying a lot.

--Justin Fox