Every market cycle has a story.

In the late 1990s it was the internet. In 2017 it was blockchain and cryptocurrencies. In 2021 it was the metaverse.

Today it is artificial intelligence.

The technology changes. Human behaviour not so much.

The pattern is remarkably consistent. A genuinely transformative technology emerges, investors become excited about its potential, and eventually capital begins flowing into anything remotely associated with the theme. At that point, companies no longer need strong fundamentals. They simply need a compelling story.

History suggests this rarely ends as envisaged.

When Stories Become More Valuable Than Businesses

During the dot-com boom, investors chased almost anything with “.com” attached to its name. The internet was clearly going to change the world, and the assumption was that every company connected to it would become successful.

One of the most infamous examples was Pets.com.

The company sold pet supplies online but never established a viable business model. Nevertheless, investors were captivated by the idea. Pets.com went public in February 2000 at $11 per share. By November of the same year, the stock traded at just 22 cents and the company ceased operations.

The internet changed the world exactly as many predicted. The problem was that investors could not clearly identify in advance who the winners would be.

The technology was real. The investment outcomes were not.

The Blockchain Version

Fast forward to 2017.

A struggling beverage company called Long Island Iced Tea Corp. announced that it was changing its name to Long Blockchain Corp. to pursue opportunities in cryptocurrency and blockchain technology.

The company’s shares surged more than 280% in a single day. Nothing meaningful had changed in the underlying business. The story had changed.

The excitement didn’t last. The company was eventually delisted from Nasdaq, experienced operational collapse, and became the subject of regulatory scrutiny. Today it stands as one of the clearest examples of speculative corporate rebranding.

Now It’s AI

Today we are beginning to see similar behaviour emerge around artificial intelligence.

Consider the recent example of Allbirds.

Originally known for its sustainable wool sneakers, the company struggled as its core business deteriorated. Its market value fell from approximately $4 billion in 2021 to a fraction of that level.

Then came a strategic pivot. The company repositioned itself as an AI infrastructure and GPU-as-a-Service provider under the name Newbird.AI. Investors responded enthusiastically and the share price surged.

The narrative shifted from selling shoes to providing AI computing infrastructure. Whether this transformation ultimately succeeds remains to be seen. The point is not about one company. The point is that we have seen this movie before.

Whenever a powerful new technology captures public imagination, companies rush to associate themselves with it. Some succeed. Most do not.

What History Actually Teaches

The lesson from history is not that new technologies fail. Quite the opposite. Railways transformed economies. The internet transformed communication and commerce.

Artificial intelligence will almost certainly transform large parts of society and business.

The lesson is that while technologies change the world, investors rarely know beforehand who will capture the lasting economic value.

During the railway boom, vast fortunes were invested and enormous wealth was destroyed before sustainable winners emerged. The same happened during the dot-com era. The same occurred during countless technological revolutions throughout history.

The eventual winners often look obvious in hindsight. They rarely look obvious at the beginning.

Narrow Markets Create Hidden Risks

This brings us to today’s market environment.

Over the last year, markets have delivered strong returns, but the gains have been increasingly concentrated in a relatively small number of themes and companies.

Globally, AI and semiconductor-related businesses have dominated performance. Locally, much of the market’s strength has been concentrated in gold and platinum shares.

Concentration creates a dangerous illusion. When a small group of assets generates most of the returns, investors begin to feel that diversification is a mistake. The temptation is to abandon discipline and chase whatever has worked most recently.

That is often the point at which risk is highest.

Not because the underlying technology is flawed, but because expectations have become detached from reality. Artificial intelligence may very well reshape the world. We believe it will.

The question for investors is not whether AI matters. The question is whether today’s prices already assume a future that may prove difficult to achieve.

History suggests caution.

 

Written by Marius Kilian