'Peak silliness': Allbirds plummets after 700% rise on AI infrastructure pivot

Allbirds shares plunged 36% on Thursday following a sharp rally a day earlier, when the stock surged more than 700% at its peak. The spike was driven by the company’s announcement of a pivot to AI infrastructure and plans to rebrand as NewBird AI, as Bloomberg reports. The company sold its footwear business to American Exchange for $39 million at the end of March and now plans to use a $50 million convertible financing facility to enter the AI computing infrastructure market.

The 36% drop on Thursday marked the stock’s biggest decline in three years, according to Bloomberg. The unexpected boost from Allbirds’ shift from wool sneakers to AI infrastructure is increasingly looking like a “flash in the pan” rather than a driver of long-term growth, Bloomberg noted.

On Wednesday, when the stock surged more than 700%, trading volume approached 300 million shares – several times higher than the usual daily average of just over 20 million. According to Vanda Research, retail net buying that day hit a record, surpassing even levels seen during the company’s 2021 IPO.

Shares fell a further 3% in premarket trading on Friday. Year to date – boosted by the Wednesday spike – the stock is up 166%. Since the strategy shift was announced, shares have gained 336% despite the recent decline in market value.

Futurum CEO Daniel Newman called the company’s pivot “the most ridiculous pivot I’ve ever seen.” “This will end badly. $50 million to build an AI cloud. Peak silliness,” he said, according to Business Insider. The company is raising $50 million through a convertible financing mechanism, without disclosing the investor, and expects to close the deal in the second quarter. It plans to use the funds to acquire high-performance AI hardware and provide access via long-term leasing arrangements.

“This has the feel of a meme stock, where emotions take over and logic and reason get thrown out the window,” said Adam Sarhan, CEO of 50 Park Investments. “That the market actually rewarded the stock yesterday when it doesn’t seem to have any kind of actual AI edge tells me that froth, specifically AI froth, is picking up.”

Given the risk of both a short squeeze and a sharp reversal – which began on Thursday – the analyst said he sees no reason “why you’d want to play this.” In the vast majority of cases, such situations “end in tears,” he added.

Analyst Dylan Carden of William Blair called Allbirds’ shift to AI “by any measure a Hail Mary” for a stock that has lost about 96% of its value since its 2021 IPO. He attributed the Wednesday rally to “some combination of a very shallow float, automated momentum, and unchecked hype.”

Carden also dropped coverage of the company, citing “limited utility” in continuing to follow the stock, Bloomberg reported. William Blair analysts noted that the $50 million earmarked for AI infrastructure is “a drop in the bucket” versus the scale of the neocloud market, where most players’ capex runs into the billions of dollars.

Gene Munster, managing partner of Deepwater Asset Management, said such moves reflect investors’ attempts to find the next meme stock. “There wasn’t any substance to the announcement, but substance doesn’t matter when it comes to enthusiasm and potential,” he said. “What you need for a meme stock is a big opportunity, and a healthy dose of absurdity. This lines up perfectly.”

Futurum chief market strategist Shay Boloor said the shift “might be one of the wildest pivots this cycle,” according to Business Insider.

Schwab Center for Financial Research chief market strategist Liz Ann Sonders expressed skepticism, saying the Allbirds story reflects how a struggling consumer brand can use a public listing to tap into a popular investment theme. “The business doesn’t matter, only the association does; in the ’90s it was internet commerce; now it’s GPU infrastructure,” she said, according to Business Insider.

Mark Malek, investment chief at Siebert Financial, also drew parallels with the dot-com era, warning that companies betting on endless demand for AI compute resources risk running into serious problems: “The burst will come.”

Malek added that the situation suggests markets are ignoring risk. A company that sold its footwear business for $39 million – less than $0.1 on the dollar of its peak valuation – was able to add $127 million in market capitalization in a single trading session simply by announcing a pivot to GPU leasing, Business Insider reported.

According to MarketWatch data, only one Wall Street analyst currently covers the stock, with a “hold” recommendation. A month ago, there were two. The average target price implies a 26.6% downside versus the latest closing level.

As investor appetite for tech continues to reshape businesses, more companies are turning to AI and related sectors as a rationale for strategic pivots, seeking to capitalize on the hype surrounding AI, Reuters writes.

Against this backdrop, Allbirds is not alone in benefiting from an AI-driven shift. Shares of Algorhythm Holdings Inc. – a company that previously operated in entertainment, including karaoke – jumped more than 200% in a single session in February after announcing a move into AI-powered logistics. Since then, however, the stock has fallen about 70% from its peak, a trajectory that closely mirrors the current performance of Allbirds shares, Bloomberg notes.