NVIDIA Surges, Reminiscent of Cisco During the Dot-com Bubble
Fueled by the artificial intelligence (AI) boom, the S&P 500 index surpassed the 5500 mark for the first time in history. However, some voices have pointed out that the AI rally in the U.S. stock market is reminiscent of the 2000s 'dot-com bubble,' major foreign media reported on the 2nd (local time).
On that day, the S&P 500 index closed at 5509.01, rising more than 50% from its lowest point in October 2022. The tech-heavy Nasdaq index also closed at 18,028.76, breaking its all-time high. It has risen more than 70% since the end of 2022.
Foreign media noted that the current situation, where a few big tech companies such as Nvidia are leading the market, is reminiscent of the so-called 'Four Horsemen'?Cisco, Dell, Microsoft (MS), and Intel?from the late 1990s. According to U.S. investment firm BTIG, Nvidia's stock price has surged about 4300% over the past five years, while Cisco's stock price rose approximately 4500% over five years until it peaked in 2000.
According to LSEG Datastream, the information technology sector accounts for 32% of the total market value of the S&P 500, the highest ratio since it recorded 35% in 2000. Just three companies?MS, Apple, and Nvidia?make up more than 20% of the S&P 500.
Foreign media expressed concerns that the AI-driven stock market surge could end in a sharp crash like the dot-com bubble. At that time, the Nasdaq index quadrupled in three years but then plunged about 80% from its peak in March 2000 to October 2002. During the same period, the S&P 500 index roughly doubled but fell 50%. While some stocks like Amazon survived and continue to lead the market today, Cisco's stock price has yet to recover its dot-com bubble peak.
Samir Samana, Senior Global Market Strategist at Wells Fargo Investment Institute, pointed out, "No one knows exactly what AI will do," adding, "Ultimately, there is also uncertainty about who will be the long-term winners."
However, foreign media evaluated that the tech stocks currently leading the market rally are in much better financial condition than the dot-com companies of the late 1990s and early 2000s. Also, according to LSEG Datastream, tech stocks traded at 48 times expected earnings during the dot-com bubble, whereas they are currently trading at 31 times.
Experts say it is difficult to predict whether an AI bubble will occur, but if U.S. growth remains robust and tech stock prices continue to rise, the indicators could also increase over the coming months. Analysts at Capital Economics analyzed that the current rally is the result of strong earnings outlooks rather than valuation increases, signaling that fundamentals are the driving force. They said, "Basically, the tech bubble will not burst until the total market value reaches the 2000 level."
Mike O'Rourke, Chief Market Strategist at JonesTrading, said, "There are many similarities (with the dot-com bubble)," adding, "Market bubbles usually have their roots in positive and fundamental growth potential behind them. This makes investors willing to pay the price."
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