A new event taking the investment world by storm is the “reverse pitch” conference, where investors pitch startups on why the startup should take their money rather than someone else’s. The start-up businesses in these events often have more than a dozen VC’s and private equity firms to choose from. What’s more, those investors pay to attend this event while the startups attend free of charge.

In traditional investment conferences, the process is quite the opposite. Investment firms pay steep fees to pitch their wares to the investors, who attend free of charge. But in today’s AI stampede, the rules have been rewritten. Or have they?

From 1995 to 2000, the Nasdaq grew 500 percent, from 1000 to over 5000, amidst the dotcom craze. Investors chased any startup with a “.com” at the end of its name. The startups were not required to have a business plan, turn a profit, or even have a product prototype to receive a share of the billions thrown at the .com space. FOMO, or Fear of Missing Out,” was all that mattered.

Until it didn’t. In early 2000, the dotcom bubble burst, and stocks continued to fall for two years. By March of 2002, the Nasdaq was down 78 percent from its high water. Not until 2015, 13 years later, did the Nasdaq fully recover.

Today, the AI stock market exhibits similarities. Nvidia, the leading AI stock, is up 1500 percent since 2020. Broadcom, another leader in the AI space, is up nearly 800 percent. Market analysts continue to predict explosive growth for both companies. Their success has resulted in free cash flow, a departure from the .com companies, and they are among a few AI and technology companies to achieve that financial milestone.

The similarity to an investment bubble is strong: seemingly limitless cash chasing unproven companies and products in hopes of earning 10x returns. Failure to realize these outsized gains will cause investors to run out of liquidity, and the cycle of bubble bursting will begin.

Nobody knows when this will happen. Optimists say the productivity growth in AI is so great it can support these valuations for years. Nonetheless, investors need to be prepared. They need to find strategies that balance this euphoria with track records of profiting from bursting bubbles. True hedge funds must show up, not ones that make their bones on leveraged bets on the same underlying stocks.

In a crisis, true exposures come to the fore. Much like the emperor’s new clothes. Eventually, the market exposes everything.