The Dark Side of A.I. SPACs

Table of Contents

1. Introduction
2. The Rise of SPACs
3. The Disastrous Results for Shareholders
4. The Influence of AI on SPACs
5. CX App: A Failed AI Rebranding
6. Jet AI: A Non-AI Company Pretending
7. Andretti and Zapata: The Quantum Computing Hype
8. The Brand Engagement Network: Uncanny Avatars
9. The Spec Bubble and the Dangers of AI Hype
10. Conclusion

The Rise of SPACs and the Disastrous Results for Shareholders

Over the past few years, Special Purpose Acquisition Companies (SPACs) have gained significant Attention in the investment world. In 2020 and 2021, SPACs experienced a massive surge in popularity as hundreds of companies went public at absurd valuations, regardless of the quality or viability of their business models. However, the outcomes for shareholders proved to be predictably disastrous.

The Influence of AI on SPACs

The year 2021 was particularly harsh for SPAC investors, with the average SPAC losing 65 percent of its value. Despite the alarming historical returns, SPAC sponsors still had a strong incentive to close deals because they were entitled to receive 20 percent of the shares for free. However, the approval of these deals rested in the hands of shareholders. In 2022, investors became increasingly reluctant to approve SPAC deals, leading to many SPACs being forced to liquidate.

But everything changed with the release of Chad GPT, an AI language model, and the subsequent stock market rally for AI-related companies. This sparked a new Wave of interest in SPACs, as spec sponsors saw an opportunity to capitalize on the AI hype by announcing mergers with new AI companies.

CX App: A Failed AI Rebranding

One example of a failed SPAC merger in the AI space is CX App. CX App, an existing product that offered an app for office management tasks, decided to rebrand itself as an AI company. However, the company's first-quarter performance after the SPAC merger showed a decline in revenue and a significant operating loss. The market reacted quickly, leading to an 80 percent decline in the share price. Despite the AI rebranding, it became apparent that CX App lacked substance in its AI capabilities.

Jet AI: A Non-AI Company Pretending

Another case of an AI-related SPAC is Jet AI, a private jet chartering company that underwent a rebranding right before the SPAC merger. Despite its claims of AI integration, Jet AI's Core business was struggling, with a significant decrease in revenue. The company's AI-powered chatbot failed to impress investors, causing many to redeem their shares and resulting in a collapse of the stock price.

Andretti and Zapata: The Quantum Computing Hype

Even well-known names like legendary race car driver Michael Andretti got involved in the AI SPAC hype. Andretti's SPAC, Andretti Acquisition Corp., intended to merge with Zapata AI, a company focused on applying quantum computing technologies to artificial intelligence. However, the reality of the situation raised questions about the viability of Zapata's technology. While Zapata boasted partnerships with large corporations, actual tangible results were yet to be achieved.

The Brand Engagement Network: Uncanny Avatars

The Brand Engagement Network is another AI startup that recently agreed to merge with a SPAC. Their concept revolves around AI-powered chatbots integrated with humanoid avatars. While the aim was to Create a more engaging interaction for customers, the psychological concept of the Uncanny Valley poses a potential risk. Without any real-world deployments or significant revenue, the Brand Engagement Network's valuation seems unjustifiable.

The Spec Bubble and the Dangers of AI Hype

The AI SPAC bubble presents significant risks for investors. While there will certainly be successful businesses utilizing AI and Generative AI technologies, the Current hype is reminiscent of the dot-com bubble of the early 2000s. Many companies failed, and investors suffered significant losses. The widespread usage of SPACs allows for less due diligence and more outrageous stock promotions, leaving ordinary investors exposed to the dangers of the AI hype.

Conclusion

While AI holds immense potential, the rush of SPACs in the AI space has led to questionable mergers and unjustified valuations. Investors should approach AI-related SPACs with caution, ensuring thorough research and due diligence before committing their capital. The allure of AI should not overshadow the need for a strong business model and true technological innovation.