Same as ever: Why Allbird’s 800% rally resembles stories from the dot-com bubble

Markets are always buzzing with boom and bust stories, and some stories reflect an opportunity missed, while others are a reality check. But one thing remains constant: the behaviour of investors in response to the event that happened. One such story is getting played right now; whether it will be a boom or a bust, only time will tell. However, it will make investors learn the same lesson again—that markets are cyclical, but reactions are the same as always.

The Allbirds saga

Allbirds Inc, an American footwear manufacturer known for its sneakers made from Merino wool, is the latest company to join the AI bandwagon. However, the story behind its entry is quite different from the existing giants like Nvidia, AMD, Alphabet, Microsoft and Meta. In its latest exchange filing, Allbirds said it has entered into a definitive agreement with an institutional investor for a $50 million financing facility to transition from a shoe maker to an AI company. The company sold off its footwear business to American Exchange Group for $39 million, which will continue to sell its shoes. It will also rebrand itself as NewBird AI, which will buy high-end GPUs from chip makers like Nvidia and AMD, and lease them to AI developers and enterprises, acting as a cloud provider.

The pivot from sneakers to AI pushed the stock price up from $2.4 on Tuesday to a record high of $24.3 per share, skyrocketing more than 800%. The development highlighted two important factors: anything that is suffixed with AI is getting discovered like gold. Second, investors are piling in heaps on AI opportunities, leading experts to predict that it’s the next bubble about to burst.

History seldom repeats, but often rhymes

Investors are now awestruck by the sharp rally in stock prices and are waiting for the right entry point in the stock if it falls. But before you scout for such opportunities, it is important to look back into history and see where these types of stories end.

This is not the first time that a business has pivoted itself by selling off its existing business and entering into the latest trend. There are several examples from the dot-com bubble era, where companies that struggled to survive in their business pivoted to the online dot-com business segment. Let’s look at a few of them.

A brick-and-mortar bookstore in late 1998 announced its website to compete with Amazon, which was at a very nascent stage back then. The stock of BAMM soared from $3 per share to an intraday high of $47 per share after the announcement. Investors were desperate to ride the bus of the trend of going online, valuing BAMM at the valuation of Amazon. Later, during the dot-com crash of 2000, the stock plummeted back to $3 per share and later went private in 2015 at $3.25 per share.

The company founded by George W Bush in 1984 was primarily engaged in oil and gas exploration, and pivoted into fish and protein oil. In 1998, when it was struggling to stay afloat, it rebranded itself into Zap.com, a mega internet portal. Following the announcement, the share price zoomed 1,200%. The company bought multiple internet websites but never managed to generate revenue due to a lack of business expertise. Consequently, the company went back to selling fish oil and the share price plummeted by 95% before being liquidated.

The Scandinavian company was primarily engaged in the business of real estate and hotels in the Canary Islands. The Norwegian Vik brothers took over the company, sold the hotels and rebranded it as Xcelera.com, a technology company. The company acquired a majority stake in Mirror Image Internet and claimed to make the internet faster. Consequently, the company’s share price jumped from $1 to $111 per share after the split adjustment, making a whopping 74,000% post-split return. Investors valued the company at nearly $4 billion at its peak. By 2004, the stock price had crashed to $1 per share in the aftermath of the dot-com crash.

The Vik brothers smartly amassed $400 million by selling a stake at the peak valuation of $4 billion. The company was later delisted from the exchange after failing to update its financial reports.

Lessons learned

Investors who are oblivious to the risks of Allbirds could face the same fate as the investors of Zapata Corporation, BAMM and Xcelera.com in the dot-com crash. These companies didn’t have expertise in the internet business, but investors driven purely by FOMO bought these stocks at exorbitant valuations even though they had virtually no business revenues. Whether Allbirds or ‘NewBird AI’ will follow the same fate, only time will tell.