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View all search resultsIs today's AI boom bigger than the dotcom bubble?
AI will require vast capital outlays, especially on data centers, which may mean that earnings and share price growth in tech could slow in the short run.
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History repeating itself?: A person uses AI software on a laptop during the opening of the new Synthesia headquarters on July 2 in Central London. (AFP/Justin Tallis)
W
all Street's concentration in the red-hot tech sector is, by some measures, greater than it has ever been, eclipsing levels hit during the 1990s dotcom bubble. But does this mean history is bound to repeat itself?
The growing concentration in US equities instantly brings to mind the internet and communications frenzy of the late 1990s. The tech-heavy Nasdaq peaked in March 2000 before cratering 65 percent over the following 12 months. And it didn't revisit its previous high for 14 years.
It seems unlikely that we'll see a repeat of this today, right? Maybe.
The market's reaction function appears to be different from what it was during the dotcom boom and bust. Just look at the current rebound from its post-'Liberation Day' tariff slump in early April, one of the fastest on record, or its rally during the pandemic.
But despite all of these differences, there are also some worrying parallels. Investors would do well to keep both in mind.
The most obvious similarity between these two periods is the concentration of tech and related industries in US equity markets. The broad tech sector now accounts for 34 percent of the S&P 500's market cap, according to some data, exceeding the previous record of 33 percent set in March 2000.
Of the top 10 companies by market capitalization today, eight are tech or communications behemoths. They include the so-called “Magnificent 7”, including Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla, as well as Berkshire Hathaway and JPMorgan.
