After rising by more than 580% in a single trading session yesterday, shares of Allbirds Inc. (Nasdaq: BIRD) fell this morning in premarket trading, at one point more than 30%.
The steep rise and now potential fall in the stock price followed the company’s unexpected announcement that it intends to transition from a sustainable shoemaker to an AI compute infrastructure provider.
But while AI-obsessed investors initially cheered the odd move, history suggests the pivot may be a challenging one to pull off in the long run. Here’s what you need to know.
What’s happened?
Yesterday, San Francisco-based Allbirds, whose wool footwear had been popular with Silicon Valley locals, announced something completely unexpected: it would stop making shoes and instead become yet another AI company.
Specifically, Allbirds said it will “pivot its business to AI compute infrastructure, with a long-term vision to become a fully integrated GPU-as-a-Service (GPUaaS) and AI-native cloud solutions provider.”
In other words, the company’s new business model will involve spending millions to buy GPUs, and it will then rent those GPUs out to AI developers. This GPU-as-a-Service (GPUaaS) model puts the former shoemaker against GPUaaS juggernauts like Amazon Web Services (AWS) and Microsoft Azure.
Allbirds will be changing its name to NewBird AI, while the “Allbirds” shoe brand will continue to be sold under its new owner, American Exchange Group (AXNY). Allbirds announced in March that it was selling its assets to AXNY for $39 million.
But what many found crazier than this out-of-left-field pivot was that investors absolutely ate up the news.
After announcing its AI plans, BIRD stock soared 582% yesterday, closing at $16.99 per share. To put that into further context, BIRD stock closed at $2.49 just the day before.
Yet today, BIRD stock is already falling. If history is any guide, the shoemaker’s AI pivot might not turn out as well as investors hope.
Allbirds stock drops in premarket trading
BIRD shares experienced a steep decline this morning in premarket trading. At one point, BIRD was down more than 30%. As of this writing, premarket trading remained volatile, with shares down about 8% at press time.
The most likely reason for the decline is simple profit-taking. Allbirds investors made massive gains yesterday, and some of those investors no doubt want to lock in those paper gains, which they do by selling the stock, thereby solidifying their profits.
Such profit-taking is very common the day after any stock has a tremendous run.
But today’s profit-taking isn’t what should worry Allbirds’ investors the most. What should worry them most is that Allbirds is not the only company to ever abandon its historic business model to pivot to a completely unrelated one just to join the latest hype train. And it didn’t work out well for the most notorious example.
The specter of Long Island Iced Tea
In 2011, the Long Island Iced Tea Corp was founded. As the company’s name suggests, it was a beverage company that made ready-to-drink iced tea products.
But in 2017, when investors were throwing their money at any company operating in the then-burgeoning hot blockchain space, Long Island Iced Tea Corp decided to go all-in on the blockchain hype.
While the company said it would continue to operate its beverage business, it said it intended to shift “its primary corporate focus towards the exploration of and investment in opportunities that leverage the benefits of blockchain technology.”
As part of this shift, Long Island Iced Tea Corp changed its name to Long Blockchain Corp.
And with that “blockchain” keyword in the name, boy did investors bite.
As noted by CNN, Long Island’s stock price surged by as much as 380% on the pivot news. But from there, things went downhill. Its blockchain pivot never really materialized, and the Securities and Exchange Commission (SEC) launched an investigation. In the end, the company’s once surging stock was delisted from the Nasdaq.
While the Long Island Iced Tea Corp’s story doesn’t mean the same thing will happen to every company that pivots its business model, it is a stark example of the potential challenges that lie ahead—possible risks for investors—when a company announces a radical shift toward the latest sector that just happens to be taking Wall Street by storm.
Whether Allbirds’ pivot will be successful remains to be seen. But it may serve investors best in the long term to proceed with caution before jumping into such an abrupt change of direction. Maybe sit back and have a nice glass of iced tea first.
This story is developing…