Foreign 2020 and 2021 were the years of the SPAC Hundreds of companies went public at absurd valuations regardless of how dumb or fraudulent their business models were. The results for shareholders were predictably disastrous. In May of 2021, an ETF was launched that tracks the prices of companies that went public via. SPAC It started trading at 25 dollars per share.

By January of 2023, it declined almost 80 percent to six dollars per share when it was liquidated due to the lack of investor interest. Here, we can see the average share price performance due date of specs based on the year the deal was closed. 2021 yielded the worst returns with the average Spack losing 65 percent of its value today, but every year has been significantly negative. Of all the specs that went public between 2019 and today, only 10 percent of them are trading above 10 per share, while 30 percent of them are trading below one dollar per share.

By all accounts, the great SPAC Mania was a complete and total disaster. Despite the poor historical returns, Spax sponsor still have a massive incentive to close the deals because they receive 20 of the shares for free. But for a deal to go through, the shareholders have to vote in favor of it. In 2022, investors were reluctant to approve deals and many specs were forced to liquidate.

It looked like the ill conceived spec Mania was finally over, but everything changed with the release of Chad GPT and the subsequent stock market rally for AI related companies. Hundreds of startups have popped up attempting to take advantage of the AI hype. Spec Sponsors were quick to take advantage of this by announcing mergers with new AI companies. In this video, we'll dive into the shadowy world of specs and how AI has made them all the more dangerous.

Foreign craze first kicked off in March of this year when a spec called Kins Technology Group merged with an operating company called CX App. They said the ticker symbol AS Cxai to represent the company's focus on artificial intelligence. The spat transaction valued the company at approximately 140 million dollars. CX App created an app which could be loaded with an indoor map of an office building and allow employees to do things like book conference rooms and find where their colleagues are.

It's important to note that CX App currently does not use artificial intelligence. They have a product Vision where they plan to launch an AI based analytics platform as well as an augmented reality platform at some point in the future. CX app is not a new product, it's been around for many years. In 2021, CX App was acquired by another software company called In Pixon.

in Pixon. claimed that by combining the two companies technology, they could innovate quickly and gain market share. The merger was a complete and total failure in picks on stock. Prices declined by 100 and is on the brink of bankruptcy.

In 2022, the Kins Technology Group's back approached in Pixon. They offered to acquire their failed CX App Business which would be spun out as a standalone company within Pixon at the brink of bankruptcy. They agreed to the deal as they had nothing to lose. Kins Technology Group rebranded CX app as an AI company and executed the spec transaction.

in the First full quarter. Following the SPAC transaction, CX app reported 1.9 million dollars of Revenue. This represents a roughly 10 percent decline versus the prior year. They also reported a 3.7 million operating loss.

It's never a good sign when your operating loss is almost double your Revenue. To be fair, this was only their first quarter after the spec. They'll need a little bit more time to ramp up their artificial intelligence in. September They proudly announced a significant breakthrough in their Ai-based augmented reality solution.

The solution is an app that allows a remote worker to see a 3D picture of their office on their phone. How this app could have any practical uses beyond me. They claim the app also incorporates generative AI, but it is not clear what the generative AI is doing. In the weeks following the SPAC merger, the share price fell by more than 80 percent as investors realized the AI rebranding was more hype than substance.

In April the stock price inexplicably surged by one thousand three hundred percent as retail investors on the stock Twits Forum found out about it. After the initial surge, the share price has resumed its slow grind towards zero. The next AI spec will cover is Jet AI. While it's in a different industry than CX app.

it's similar in that it was a non-ai business which rebranded to AI right before it. SPAC Jet AI is a private jet chartering company founded in 2018. Up until 2023. it was called Jet Token.

They own a handful of small private jets and consumers can pay an hourly rate to book flights on them. Immediately prior to the SPAC merger, it appears that Jet Ai's business was imploding. for the second quarter of 2023. They generated just 2.8 million dollars of Revenue a 60 year-over-year decrease.

The minuscule Revenue they generated wasn't enough to cover the cost of operating their Jets so they reported a gross loss. So how does this apparently failing private jet charter business have anything to do with artificial intelligence? They launched an app called Charter GPT This includes an AI powered chat bot which helps you book a trip on a private jet. It's unclear what problem this will solve, as many private jet chartering companies already allow you to book online. The AI hype was enough to execute this pack, but many investors redeemed their shares and the stock price quickly collapsed.

Jai and CX app are fundamentally non-ai companies pretending to be AI related in an attempt to capitalize on investor hype, but there are also some specs merging with real AI startups. Will they do any better? Foreign Ty is a legend in the U.S Motorsports industry being one of the most successful Indy 500 race car drivers of all time, but he is not an expert in the fields of investment or artificial intelligence. Nevertheless, in 2022, he founded a spec which raised 200 million dollars from investors. in June Of 2023, Andretti announced its intention to merge with a generative AI software company called Zapata AI at an implied Equity valuation of 331 million dollars.

So what is Zapata and why is it worth so much? Zapata was founded by Harvard researchers and spun out as an independent company in 2017. their goal is to apply Quantum Computing Technologies into artificial intelligence. At the time of Zapata's founding, there was a lot of hyper on Quantum Computing as companies including Google and IBM were making big advancements in the space. Zapata does not make its own quantum computers.

It instead makes software which could be used with quantum computers developed by other companies in 2019. Google claimed to achieve something called Quantum Supremacy when their quantum computer performed a calculation in 200 seconds that would have taken the world's fastest supercomputer more than 10 000 years. While this achievement sounds impressive on paper, Quantum Computing is still nowhere close to performing real world applications. Quantum physics is inherently random and thus the output of a quantum computer is inherently random.

Currently, the only thing quantum computers can do effectively is Generate Random numbers. The Google Quantum computer was able to Generate random numbers far faster than a traditional computer, but this has very limited applications in the real world. A number of Quantum Computing Hardware companies are trying to make quantum computers which incorrect for this Randomness but this is likely many years away and some physicists doubt if it's even possible at all. Zapata is taking a different approach instead of trying to correct for the randomness of quantum.

Computing They are embracing it. They believe they can use random numbers generated by quantum computers as an input to existing machine learning techniques. According to Zapata's Speck they're already generating revenue and Grady Spec has not yet filed the form S4 relating to the Zapata merger, so we do not yet know how much revenue they're generating, but it's probably not much. They disclose five commercial customers.

One of them is a racing company owned by Michael Andretti which is therefore a related party. They have four unrelated commercial customers: The Chemical Company BASF a Spanish band called BBVA The Automobile Company BMW and British Petroleum Zapata posted information about each of these customers on their website. BASF is exploring Zapata's machine learning approaches for predicting molecular properties. They have not yet achieved anything tangible as a result of these experimentations.

If they had, I'm sure Zapata would have publicized it ahead of their public Market debut. Similarly, BMW is experimenting with Zapata's AI for plant scheduling optimization. It's unclear if BMW has ever implemented any of Zapata's technology into their operations. BBVA Worked with Zapata to do research on how they could Implement Quantum Computing into derivative pricing models, but existing Quantum Computing Technologies are not yet robust enough to be used in practice and none of this research has been implemented in Bpva's operations.

Zapata Collaborated with British Petroleum to explore Quantum Computing for chemistry applications They concluded that a performant Enterprise scale solution is still years away. While Zapata brags about their Partnerships with large corporations, they are still years away from ever achieving anything useful. Zapata is basically a cash burning research lab which may or may not ever turn into a viable business given the early stage and speculative nature of its technology. Zapata has no business being a publicly traded company and under normal market conditions, it could never.

IPO but the recent AI Crates has allowed them to merge with at an absurd valuation. The next AI startup going public via SPAC is called the Brand Engagement Network which recently agreed to merge with DHC acquisition Corp at a 350 million dollar valuation. This startup developed an Ai-powered chat bot which integrates with the humanoid Avatar The idea is that the humanoid Avatar will make customers feel more comfortable because they feel like they're talking to a real person. Of course, this could also backfire if customers think the Avatar is too creepy.

There's a psychological theory called The Uncanny Valley where avatars that look too human-like provoked a feeling of uneasiness and revulsion. It is unclear how consumers will react to the brand engagement Network's avatars as it does not appear that they have been deployed in the real world. The spec has not yet filed a form S4 so we don't know what the company's revenue is, but based on their smack presentation, it's probably close to zero. They talk a lot about their massive addressable Market but make no reference to any customer who's deployed their product today.

In their development timeline, they talk about having launched their prototype in 2020 and having acquired some patents in 2023, but there is again no reference to any customer deployments. And finally, they say investors will likely focus on future revenue and gross profit to Value the company. This implies that there is little or no current Revenue to speak of. We'll have to wait until they release their form S4 which will happen before the SPAC merger is executed, but based on the little information we have now, this appears to be a pre-revenue company.

According to LinkedIn, they only have nine employees. This is a tiny company with an absurd valuation. Generative AI is perhaps the most exciting new technology of the past decade, and there will certainly be many successful businesses utilizing it. Twenty years ago, the internet was similarly viewed as the next big thing, and investors were equally hyped up, but the vast majority of.com companies went bankrupt and most investors suffered huge losses.

I Expect similar results with the current AI bubble, except this time will be likely even worse. The widespread usage of specs allows for Less due diligence and ever more outrageous stock promotions, which will leave ordinary investors holding the bag. Alright guys, that wraps it up for this video. What do you think about AI Specs? Let us know in the comments section below.

As always, thank you so much for watching and we'll see in the next one. Wall Street Millennial Signing out.