Don’t Fall for the LK-99 Mania

Dear Reader,

“Science tells us that the breakthroughs in superconductivity bring us to the threshold of a new age. Sky is the only limit.”

That’s what the President of the United States said after the breakthrough discovery of a new superconducting material. The remarks came during a two-day superconductivity conference at the White House.

Previous superconducting materials required extremely cold temperatures that were not only hard to replicate but expensive.

This new form of superconducting material can function at temperatures that can be achieved cheaply and easily.

The scientific breakthrough can lead to a dazzling array of new applications, including an endless source of clean energy, high-speed trains, and quantum computers.

You probably think I’m talking about LK-99, an alleged superconducting material that can function at room temperature. Most require either extremely cold temperatures or high pressures.

For over a century, scientists have been searching for a superconducting material that functioned at higher temperatures. The discovery would not only lead to a Nobel Prize but would be one of the most significant moments in human history.

But here’s the thing…

The quote at the top of the essay wasn’t from President Biden. It was President Reagan in 1987. And the superconductor “breakthrough” at the time wasn’t LK-99. It was a development from IBM.

I share this to make an important point: There is plenty of excitement around superconductivity right now. But we have seen this before…

High-Temperature Superconductors

As I mentioned, in 1986 a pair of researchers from IBM created the first of what are known as high-temperature superconductors. These ceramic materials achieve superconductivity cooled with liquid nitrogen. An extremely cold substance, but one that is readily available.

It was a breakthrough moment in the world of physics, and the pair won the Nobel Prize in 1987. The technology also caught the attention of the President of the United States. Then, like now, excitement around the technology led many to believe that a futuristic version of the world was just around the corner.

But despite a worldwide effort to advance superconductors based on this research, few real-world applications have materialized. After all, the conditions for superconductivity (cold temperatures, artificial pressures) made it unrealistic for wide-scale adoption.

It just goes to show that even the President of the U.S. can get overly enthusiastic about potential breakthroughs.

The promise of unlimited energy sources from superconductors has been around for decades. Despite the best efforts of scientists and researchers, no one has come close to turning this into reality. LK-99 is simply the latest attempt.

And while I’d like to be excited about the possibility of LK-99 being a game changer, I wanted to wait for other scientists to replicate the original findings. Attempts to verify the results have so far failed. 

But many investors let the hype get the better of them.

A Speculative Rally

Shares of American Superconductor Corporation (AMSC) rallied over 60% in a single day. Investors were simply buying the hype of LK-99 benefiting a company with “superconductor” in its name.

Investing in hype rarely works out…

AMSC is now trading just 17% above its price before the hype started. It experienced a 47% drawdown from its hype peak. That means some overly enthusiastic investors lost a lot of money last week.

Even if LK-99 ends up being the breakthrough compound researchers claim, it’ll still be many years of development before its close to commercial use.

And there’s no reason to suspect that ASMC would be the one to profit from it.

The lesson here is to not act off headlines alone.

I’ve followed stocks for years before investing or recommending them. That’s because I wait for everything to line up: a company positioned in an undeniable trend, with a competitive edge, and trading at a great price.

It can take months or years for all of those things to line up. And you don’t even have to be early.

You could have bought Apple stock when the iPhone 5 was released in 2013 and be up 1,000%. You’d have similar gains if you bought Tesla in 2017 when the first Model 3 was being delivered.

If LK-99 truly becomes a breakthrough technology, it will change the world. There will be investment opportunities that unfold for years – likely decades. But if history is a guide, room-temperature superconductors are more of a dream than reality.

Disciplined market research like what I share with my readers is how you build wealth in the stock market. Not buying hyped-up stocks.

Regards,

Colin Tedards
Editor, The Bleeding Edge