AllBirds pivots to AI mania
Corporate strategic pivots are common throughout history and particularly during market booms. Recall the mining companies that became internet companies during the internet bubble of 1999. Back then, merely adding “.com” to a company’s name saw its share price surge.
In the 1920s, radio was the ‘Internet and artificial intelligence (AI)’ equivalent of its day. It was the first time an electronic buzzword could instantly inflate a company’s value, and between 1922 and 1929, sales of radio equipment in the U.S. jumped from US$60 million to over US$840 million. Investors were so hungry for radio exposure that any company adding the word to its name saw its stock soar.
More recently, we saw the ‘Blockchain’ pivot of 2017. As Bitcoin approached US$20,000 for the first time, companies with zero crypto experience suddenly discovered decentralisation.
The beverage company, Long Island Iced Tea Corp., rebranded as Long Blockchain Corp. in December 2017, triggering its stock to surge 289 per cent in a single day. Subsequently, they never actually built a blockchain, eventually delisted and were subpoenaed by the Securities and Exchange Commission (SEC).
A month later, the photography giant Kodak announced KodakCoin, a blockchain-based image rights platform. Kodak’s stock tripled.
But in the annals of corporate history, few transformations have been quite as jarring – or as lucrative over twenty-four hours – as last week’s metamorphosis of Allbirds.
On Tuesday, 14 April, this year, AllBirds was a Direct-to-Consumer brand of sustainable footwear, having sold organic hemp and wool sneakers. At US$2.49, the company’s share price had fallen 99.52 per cent from its November 2021 price of US$520.60 per share. The next day – Wednesday 15 April – the company’s shares closed almost 600 per cent higher, after touching US$24.31 (up almost 1000 per cent at the high).
What changed?
AllBird announced it had a new name and a new logo. AllBirds Inc became NewBird AI and the company said it will become an AI compute infrastructure company. The company has no data centres, no AI engineers and no Graphic Processing Units (GPUs). It doesn’t even have any shoes because it sold the shoe business in March for US$39 million (back in November 2021, its market cap was US$4.5 billion).
On the strength of a name change and a US$50 million funding announcement, the market bid the stock up by a staggering 582 per cent. And it’s US$50 million convertible note won’t fund many of today’s top AI engineers nor purchase many of Nvidia’s GPUs.
Chalk it up as another example in the bizarre litany of investors betting on others’ fear of missing out (FOMO).
The alchemy of the pivot
The Allbirds-to-NewBird pivot is just the latest example of what some describe as the ‘Pivot Economy.’ Take a dying business, scrape off the failing product, and paste on the latest market obsession.
What makes NewBird AI a little different, however, is the massive discipline gap. Companies like Microsoft, Amazon and Google are engaged in a multi-billion-dollar arms race, leveraging decades of supplier relationships with Nvidia and custom-built silicon. Meanwhile, Meta is paying up to US$100 million to recruit individual AI engineers. But NewBird is entering the fight with nothing more than US$50 million and a new logo. At best, that buys a few racks of GPUs but not much else.
Allbirds was once the poster child for sustainable capitalism. It was a Public Benefit Corporation built on the idea that shoes could be made from trees and wool rather than petroleum.
Now, shareholders are expected to vote to strip the company of its public benefit status, gut it for parts, sell its name to the American Exchange Group, and chase a “GPU-as-a-Service” (GPUaaS) model. Sustainability, it seems, is less profitable than mentioning AI.
Why do ‘investors’ buy these stories?
I put investors in inverted commas because they aren’t. They’re speculators. The 582 per cent surge wasn’t driven by a sudden belief that NewBird will outmanoeuvre Amazon Web Services (AWS). Instead, it reflects a market that’s become increasingly decoupled from fundamental value. Retail investors, algorithmic traders, and speculative hedge funds are no longer looking for quality businesses – they jumping on an off ‘narratives’, speculating about what the next narrative might be and when others might buy it.
When Nvidia’s valuation is approaching US$5 trillion, the desire to find the next best AI exposure becomes so gluttonous that investors lose the ability, or don’t care, to distinguish between an owner and a tenant.
Put a Ferrari in a race against a Volvo, and after the Ferrari wins 1000 times, people will start betting on the Volvo to win once, to ‘catch up’. And people will bet on anything – witness cane toad races in Queensland.
NewBird AI is effectively a backdoor listing for AI hype. By taking an existing ticker ($BIRD) and rebranding it, the company is simply a vehicle for speculators to play the AI trend by getting in on another ground floor ‘opportunity’.
The warnings
Investment advisors are right to sound an alarm. Past instances of the AllBirds pivot have coincided with thematic frenzies. The surging price of Allbirds can occur in isolation but it does reflect the indiscriminate nature of the optimism surrounding AI.
When a shoe company without shoes can gain half a billion dollars in value overnight simply by changing its name to a buzzword without any experience, it suggests the so-called smart money is no longer doing smart things.
NewBird AI’s long-term vision is to meet “customer demand that hyperscalers are unable to reliably service.” It’s an ambitious goal for a company that, until last month, was worried about hemp.
The historical precedent for these pivots is grim.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
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