No. of Recommendations: 26
AI has the potential to be one of the greatest transformational technologies of all time ... subject of great enthusiasm. If that enthusiasm doesnt produce a bubble conforming to the historical pattern, that will be a first.
Bubbles created in this process usually end in losses for those who fuel them.
This motivated me to have a look at the hard numbers of another bubble that occured much more recently than the .com bubble, a bubble nobody talks about any more: SAAS stocks.
Overview for the uninitiated (hard numbers further below, after my preliminary blabla):
SAAS = Software as a Service = IT producing software which their customers donīt buy but rent, like Microsoft does with Office 365. Only that those companies do only that, relying on constantly renewed subscriptions to their software services, resulting in reliable(?) recurring revenue.
Surely you have personal experience with at least one of those companies, Cloudflare. Because near evewrybody sooner or later see a message "We need to make sure you are not a robot" on his screen and has to tick a box. This is one of the security features Cloudflare provides to itīs customers.
The SAAS bubble started around 2018. There were only a handful of pure SAAS companies around then, mainly Shopify. They had extreme growth rates. That draw the attention of some clever investors. Surely some here remember "Saulīs" (Rosenthal) board at The Motley Fool. Saul was/is a genius who very early spotted the advantages of the SAAS business model. He quickly had a huge number of followers. More SAAS businesses were founded. They made no profits, but their subscription numbers grew 50% or more each year (if I remember correctly +50%/year even was Saulīs criterion to put a company on his list). All was based on future hope that those extreme growth rates later could be converted into equally extreme profits. Their stock prices exploded. Many not just tripled or quadrupled within 2 years, but were 10x or more higher.
Very sophisticated and highly intelligent people on Saulīs board drilled deep down to make a well founded case for or against a SAAS company, looking deep into their numbers, at their competitors etc. Many of those early investors became Millionaires, Multi-Millionaires, maybe even more --- as always when a bubble forms and the clever ones get in early and leave before it bursts.
Bursting it did in 2022. The result for the SAAS stocks I followed during that time:
Name: Stock Price at height of Mania -> Current stock price
Amplitude: $83 -> $11
BILL: $334 -> $54
Cloudflare: $211 -> $208
CrowdStrike: $283 -> $517
Datadog: $192 -> $152
MongoDB: $500 -> $354
Sentinel One: $76 -> $14
Shopify: $169 -> $159
Snowflake: $392 -> $222 (a Berkshire investment)
Upstart: $390 -> 46
Zscaler: $368 -> $243
From those ones only the now undisputed leaders in Cybersecurity, Cloudflare and CrowdStrike, nowadays have a higher stock price than at the height of the mania. And even with those you probably would have lost nearly all your money if you had entered the "game" somewhere around the peak, as for the following years even those two winners traded far lower, Cloudflare even at around 1/3 of itīs peak price. Not to mention what happened to the other SAAS companies. Just have a look at Snowflake, a Berkshire investment: $387 at the peak of the mania, then for 3 years around $150, currently $222.
Summary: Manias are a great opportunity to make huge profits --- but only if your name is Saul (and not Said :)
