I hate comparing Nvidia to anything.

Because these days there’s really nothing like Nvidia — the unstoppable AI juggernaut that’s dragged entire indexes (apparently kicking and screaming) to new all-time highs.

Indeed, today Nvidia has no peer, at least in the AI world. But there have been other times when the same thing could have been said about other stocks…

Like the vast majority of tech stocks in the late 1990s.

Or the growth stock sector in 2020 and 2021.

They all had their moments of glory… followed by moments of crushing shame.

These kinds of booms require certain combinations of factors to align just at the right time to generate their remarkable ascents. And all it takes is a small change in the alignment of those factors to knock an 800 pound gorilla off its pedestal.

The same holds true for metals (and the companies that mine them).

Lithium’s Wild Ride

In late 2021 the price of lithium started a spectacular climb that took it from roughly $13,000 per metric ton to over $80,000 in less than two years. A gain of over 500%.

Like most unstoppable market moves, the driving force behind lithium’s rise was a combination of expectations of a coming EV boom, the great net-zero push, a lot of free stimulus money from the pandemic and… China.

S&P Global correctly observed:

As battery production capacity continues to expand, fueled by expectations of strong electric vehicle sales against the backdrop of intensified decarbonization efforts, it is almost a certainty that China’s demand for lithium will increase further this year.

Headlines well into 2023 were still predicting massive lithium demand.

But while some were predicting a rebound to the stratosphere, the EV euphoria began to die down as government subsidies — including China itself — began to cool.

Lithium

Source: Daily Metal Prices

The End for Lithium?

Not so fast.

What you’ve just witnessed was likely only Act One of the lithium drama. Let me explain…

Back in 1995, an analyst for the consulting firm Gartner introduced “a graphical illustration of a pattern that is commonly observed with new technologies or innovations.”

They called it the Hype Cycle.

The Hype Cycle is broken down into five main stages. It begins with a “Technology Trigger” that sparks a widespread interest in some new and innovative development. This is when the new tech begins to capture the imagination of the public. Initial versions of the product are rolled out to the public. Early adopters jump on board and the media begins to cover the thing incessantly.

The soaring rise in attention eventually leads to the second stage: the “Peak of Inflated Expectations.” This is the point when the public realizes that the new doo-hickey actually can’t slice bread, do your laundry and basically make you 20 years younger.

This realization leads to the third stage known as the “Trough of Disillusionment.” This is the fall from grace. The initial excitement surrounding the product fades and is replaced by unmet expectations. “Well it sounded like a good idea.” The ever faithful media gets on this bandwagon as well spreading the collective disappointment.

But the disillusionment eventually gives way to the “Slope of Enlightenment.” Sanity finally sets back in and, as the product evolves, it eventually finds its place in the world. At which point it reaches the “Plateau of Productivity.”

The End.

The pattern follows any exciting story arc. If you plot it out it looks like this…

Source: Peter Diamandis

If you look at the lithium chart above in light of the Hype Cycle illustration, it becomes pretty evident where the lithium market is.

Lithium Will Likely Find Its Place

The explosion in lithium prices came on the back of what were basically inflated expectations for the EV market. The instant success didn’t materialize. And the market reacted as markets will.

But that doesn’t mean the future of lithium is finished.

Lithium is a critical metal that is not only used in batteries, but in many more applications as well. Demand for it is not going away.

You can expect it to rebound, albeit at a somewhat saner pace. Case in point…

Recently Chinese battery storage manufacturer CATL (the largest battery storage manufacturer in the world) has committed to cutting its battery prices by up to 50% per kilowatt hour. A sharply lowered price in manufacturing components would lead to more affordable EV prices.

And a boost in the demand for lithium.

I won’t speculate on where Nvidia is in its current trek in the hype cycle stratosphere.

But lithium is likely in a good place.