If you’ve been in business for more than ten years, you’ve watched an industry boom and then cool. Maybe it was direct-to-consumer. Maybe it was crypto. Maybe it was streaming. Maybe it’s currently AI. The sectors change. The pattern is identical.
Here are the signals that a hot industry is about to enter its cooling phase. They are reliable. They show up in the same order. By the time three or four are present, the cycle is clearly past peak.
One: Fundraises start including “AI” or the relevant buzzword in the company name. When a sector is genuinely growing, companies focus on the problems they’re solving. As the sector becomes a fundraising vehicle, companies start branding around the sector itself. You see this when company names start including “DTC” or “crypto” or “AI” as descriptors rather than tools. This signals that the company’s identity is the category, which means the company is positioning for capital rather than customers.
Two: Conferences proliferate. A healthy industry has a few well-respected conferences run by people who actually work in the sector. A peaking industry has new conferences every month. The conferences attract increasingly less senior speakers. The audiences become increasingly comprised of people new to the sector rather than experienced practitioners. The conference economy itself becomes a leading indicator of decline.
Three: Generalist investors start specializing. When a sector is hot, investors who previously didn’t focus on it start raising sector-specific funds. This is a contrarian signal. The investors who were in the sector early are the ones who actually understand it. The investors who arrive late are usually arriving for the fundraising opportunity, not because they understand the underlying business dynamics.
Four: Talent starts pivoting in. A healthy industry attracts people who have spent years in adjacent fields and bring real expertise. A peaking industry attracts people who were doing something completely different six months ago and have repositioned themselves. When you see a wave of “I’m now an AI researcher” announcements from people who were marketers or designers a year earlier, the cycle is past peak.
Five: Coverage moves from trade publications to mainstream press. Trade publications cover what’s actually happening in an industry. Mainstream press covers what’s interesting to general readers. When an industry’s coverage moves from trade press to mainstream press to business cover stories, the audience for the news has expanded beyond practitioners. This is a sign the bubble is at retail-investor scale.
Six: Skeptical writing starts appearing. This is the late signal. Once major publications run pieces questioning the sustainability of the boom, the cooling has already started among practitioners. The writing reflects what insiders have been saying privately for several quarters. By the time the skeptical pieces are mainstream, the smart money has already started pivoting out.
Seven: Compensation distortions start to appear. Engineers in the hot sector make 30% to 50% more than comparable engineers elsewhere. Specialized vendors charge unusual premiums. The labor market shows clear distortions that wouldn’t exist if the demand were sustainable. These distortions resolve quickly when the cycle cools.
The reason this pattern is reliable: every cycle is driven by the same underlying psychology. Capital floods in. Talent follows the capital. Storytelling expands to absorb the new attention. The story eventually outpaces the actual business fundamentals. When the gap becomes too obvious, the cycle reverses.
For founders, the implication is straightforward. The best time to start a company in a hot sector is before it’s hot. The worst time is when all seven of these signals are present. If you’re looking at an industry and counting four or more of these signals, the strategic move is usually to wait for the cycle to reset before committing.
The takeaway
Boom-and-bust cycles in industries are not random. They follow a predictable pattern. If you can read the pattern, you can avoid building at the worst moments and time your entries to the best ones.
