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Dotcom boom echoes haunt AI-driven US stock market

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A U.S. stock rise fueled by confidence in artificial intelligence is reminiscent of the dotcom bubble two decades ago, raising the question of whether prices have been inflated again.
After a 50% surge from its October 2022 low, AI fever, a solid economy, and higher profitability have boosted the S&P 500 index  to new milestones this year. Since 2022, the tech-heavy Nasdaq Composite index  has gained nearly 70%.

While measures show stock prices and investor excitement have yet to reach turn-of-the-century high, the similarities are clear. Like the “Four Horsemen” of the late 1990s, a small number of major tech stocks, like AI chipmaker Nvidia represent today’s market.
Nvidia’s almost 4,300% five-year run reminded BTIG of Cisco which rose 4,500% over five years before its 2000 peak.

While valuations have increased, many tech champions appear to be in better financial shape than their dot-com predecessors of the late 1990s and early 2000s. Investor bullishness, for example, has not reached the turn-of-the-century highs.
The AI-driven boom may culminate in a massive crash like the dot-com boom. The Nasdaq Composite fell approximately 80% from March 2000 to October 2002 after nearly quadrupling in three years. The S&P 500, which doubled within the same timeframe, fell nearly 50%.

Following the dot-com boom, the information technology sector has grown to 32% of the S&P 500’s market value, the highest percentage since 2000’s roughly 35%, according to LSEG Datastream. Over 20% of the index is represented by Microsoft , Apple and Nvidia.

Datastream reports that tech equities trade at 31 times forecast earnings, down from 48 times in 2000.

Nvidia and Cisco, a major internet infrastructure business, have different valuations. Cisco’s stock has failed to recover from the dotcom boom.
Both stocks have risen, but Datastream says Nvidia trades at 40 times projected earnings forecasts, compared to Cisco’s 131 in March 2000.

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