Last week, Allbirds (BIRD), the shoemaker that built its brand equity on sustainability and eco-friendliness, saw its stock rise by as much as 500% after announcing its pivot to a GPU as a Service and AI-focused cloud solutions company.

Prior to this surprising announcement, the company had sold all of its intellectual property and other assets to American Exchange Group (AXNY) for $39 million. 

Allbirds, in its announcement, revealed that it entered into a definitive agreement with an undisclosed institutional investor to stand up a $50 million convertible financing facility, which is expected to close during the second quarter of this year.

The firm said it plans to use the $50 million to purchase GPUs and other related equipment that it will then rent to customers.

Next month shareholders will vote on the sale of company IP, the financing facility, as well as whether or not the company will change its name to Newbird AI.

In the meantime, Allbirds’ rally has cooled off. The company’s shares dropped 50% over the past few days as meme-stock hype has died down and the market has once again realized why this company collapsed from its one-time $4 billion valuation.

Allbirds has struggled since its 2021 IPO. The company’s use of eco-friendly materials like wool and eucalyptus attracted eco-conscious consumers from Silicon Valley and investors as ESG-focused investing grew in popularity.

While this spurred the company’s pre-IPO growth, industry observers say that the company wasn’t able to adapt to changing consumer tastes. 

According to them, the shoemaker failed to create and evolve products that catered to the tastes of retail customers whose interests weren’t just about finding shoes made from sustainable materials.

And on the subject of execution, Allbirds pivoted away from its online direct-to-customer model and aggressively pursued physical locations which the company struggled to fill with customers.

The company also introduced new products, many of which were failures. And to make matters worse, the shoemaker suffered from quality control issues for its sneakers, with some customers reporting that shoes degraded just months after purchase.

All of these struggles amounted to declining sales. Allbirds ended 2022 with almost $300 million in revenue. By 2025, revenues had dropped sharply to $153 million—just over half of what the firm delivered during its peak.

When considered in this light, Allbirds’ desperate pivot becomes apparent and somewhat understandable. However, this longshot gamble might not be the hail mary it’s being cracked up to be. 

The much-touted $50 million convertible financing agreement is just a drop in the bucket when it comes to AI hardware. CoreWeave (CRWV), a leader in outsourcing computing power is set to spend around $35 billion in capex this year. 

Allbirds, as it looks now, seems to be joining a long line of meme stocks and other companies that have turned to surprising strategic shifts to boost their stock. 

Investors are already turning their backs on this stock after its brief rally, and it still has plenty of room to keep dropping.

Allbirds failed as a shoemaker and has shown no experience in cloud computing or AI. Investors shouldn’t buy into the hype and the irrational mania that has surrounded this stock. 

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

Today’s analysis highlights the same insights we share with our FA Alpha Members. If you want to an get in-depth analysis of market trends and uncover undervalued stocks, become an FA Alpha Member today.