AI Bubble or AI Opportunity – The Answer is Now More Clear

Dear Reader,

About a month ago, I detailed the moves that were coming among the hottest stocks in the market.

The comparison I made between the .com bubble stocks and the current group of Alternative Intelligence (AI) standouts has played out almost perfectly in determining that we’re still facing an opportunity – not yet a bubble – among these popular names.

Some of these names are up to 25% or more off their summer highs as the seasonally weak August and September have rattled investor’s confidence.

Not me. I’m still looking at the horizon and the long-term opportunity on this special group of stocks as the technicals are lining-up for another AI bull market.

I’ll identify two of the opportunities I’m tracking in the AI space on Thursday.

For now, let’s look at why the AI stocks still look and feel like the early stage .com bubble stocks.

Let’s start with Microsoft (MSFT), Alphabet (GOOGL) and NVIDIA (NVDA)…

Three companies that have seen their market capitalization go from $3.1 Trillion to $5.1 Trillion since the beginning of 2023.

For all investors that’s mind-numbing and exciting. The kind of movement that you want to make sure you are a part of. You know, FOMO.

For others, including myself, it’s a little scary. It evokes memories of another market cap explosion that happened 25 years ago.

Yes, I’m going to go there, the dot com bubble.

I’m going there because at my core, I feel there is a difference. At least for now.

It all has to do with how bubbles are constructed.

First and foremost, bubbles start with innovation. Something that changes the way we do business, how we work, how we live and everything else… forever.

The last time that we saw something like that was in the 1990s. Not in 2000, but earlier.

Like Artificial Intelligence, the Dot Com Bubble was deeply rooted in the semiconductor industry. At that time Intel was at the core of the technological innovation that changed everything.

The increase in computing power and efficiency led to desktop computers everywhere. In offices, on factory floors and in our houses. Put simply, this increased productivity by multiples of hundreds and thousands. That productivity overflowed into incredible economic growth, until it popped.

I remember the cries of a “bubble” in 1997. But it didn’t happen. Call it a “pre-bubble”, but it wasn’t the catastrophic event that everyone was calling for. Not yet.

The same is true of AI today, but we’re still in the early innings of a regulation nine inning game.

Check the chart below.

As I mentioned, Intel was at the genesis of the Dot Com boom. Their chips led to a production boom while also blazing the trail for what would become the internet. Sure, you need Cisco (CSCO), Dell (DELL), Microsoft (MSFT) and others to get us to the full-on internet, but Intel is a great “poster stock” of the era.

While impressive, the chart above only about three innings into the game. The stock went from $2.50 to $15 in a three-year period ending in late 1997. A 500% increase in value.

It’s a pretty close image of the chart that we’re now pointing at as the “poster stock” of the AI “bubble” potential, NVIDIA.

Like Intel in the 1990s, NVIDIA has spent the last three years rallying from $100 to nearly $500, a 400% move higher.

And like Intel in 1997, NVIDIA shares feel a little toppy and ready to fall a little from its lofty valuations. That’s where I see the long-term AI Opportunity.

The charts and the story are uncanny in their similarities.

So what’s the rub? What do you get out of this?

Here’s the “rest of the story” for the late 1990’s on Intel.

We’ll talk more about this in the coming days – and I’ll be naming names.

Until then…

Chris Johnson
Quantitative Specialist

Leave a Comment

View this page online: