The recent surge in US stocks, driven largely by excitement over artificial intelligence (AI), is reminiscent of the dot-com bubble from two decades ago, sparking fears that market prices may again be overinflated due to excessive optimism about a revolutionary technology. The combination of AI enthusiasm, a resilient economy, and robust earnings has pushed the S&P 500 index to record highs this year, with a rise of over 50 per cent from its October 2022 low. Meanwhile, the tech-heavy Nasdaq Composite index has climbed more than 70 per cent since the end of 2022.
Although current indicators show that stock valuations and investor enthusiasm haven’t yet reached the heights of the late 1990s, the similarities are hard to ignore. Today, a small group of massive tech stocks, including AI chipmaker NVIDIA, dominate the market in a manner similar to the “Four Horsemen” of the late 1990s: Cisco, Dell, Microsoft, and Intel. NVIDIA’s shares have skyrocketed nearly 4,300 per cent over a recent five-year period, recalling Cisco’s approximately 4,500 per cent surge in the years leading up to its peak in 2000.
While valuations have certainly increased, today’s tech leaders are generally in stronger financial positions than their counterparts from the dot-com era. Other indicators, such as investor bullishness, have also not yet reached the extreme levels seen at the turn of the century. Despite this, concerns remain that the AI-driven market boom could end in a similar fashion.