Whenever a financial bubble bursts, certain stories emerge that capture the irrational exuberance of the peak times and become folklore of sorts. One of the most famous examples from the dotcom era is the ill-fated listing of Pets.com in February 2000. While not the largest IPO of that time, its ability to go public despite minimal revenues made it a symbol of the era’s madness. Similar tales abound, like the outlandish multiple NINJA loans granted to strippers during the 2007 housing crisis, or the staggering claim that the land beneath Tokyo’s Imperial Palace was worth more than all of California combined.
Today, we might be witnessing the emergence of such legendary folly in the current AI boom. Recently, images and videos of Nvidia Corp.’s CEO enjoying a casual outing at a restaurant in Seoul with notable executives from Samsung and Hyundai went viral. These light-hearted moments sparked a frenzy among investors, sending stock prices of companies tangentially associated with chicken and AI soaring. While Kkanbu Chicken, the restaurant in question, is not publicly traded, shares of its rival, Kyochon F&B Co., briefly surged by as much as 20%. Additionally, Cherrybro Co., a poultry processor, experienced a dramatic 30% increase in stock price, while shares of Neuromeka Co., a company that manufactures chicken-frying robots, also saw notable gains.
Bloomberg highlights this phenomenon as indicative of South Korean retail traders, noted for their enthusiastic and sometimes reckless trading behavior. The trend of stocks rising significantly on the slightest connection to AI is not limited to South Korea. For instance, Bloom Energy, a fuel cell manufacturer, has seen its stock price soar nearly five times its previous value before skyrocketing another 1,166% in just 12 months, reaching a market valuation exceeding $30 billion.
As the AI sector experiences explosive growth, analysts are expressing concern over the increasingly convoluted relationships among AI companies. Morgan Stanley noted that the industry has become “increasingly circular,” with suppliers and customers interlinked through funding and investment agreements. This interconnectedness creates complexities that make it challenging for investors to gauge the true economic health of the sector.
For example, suppliers are financing customer operations through equity investments, enabling other vendors to extend their own credit based on the enhanced cash flow of their customers. This interdependence amplifies risks, as heavy customer concentrations raise concerns about payment reliability and overall growth. Revenue-sharing arrangements contribute to the opacity of revenue quality, with potential for the same revenue being recorded multiple times.
Investors are urged to closely scrutinize new funding sources and off-balance-sheet transactions that could further complicate the risk landscape. In a recent report, Morgan Stanley even presented an OpenAI-focused chart illustrating this intricate web of relationships and financial maneuvers.
As the current AI boom continues, the echoes of past financial follies loom large, prompting questions about whether this surge is sustainable or destined to become another cautionary tale in the annals of financial history.
