I came across a fascinating chart on X a few weeks ago that stirred up some controversy.
It builds directly on last week’s Chart of the Week, where we talked about how the artificial intelligence arms race is showing up in earnings and stock prices.
But this new chart takes that idea a step further by suggesting that today’s AI-driven market might be replaying the late-1990s internet boom all over again. And if that’s true, then what we’ve seen so far might only be the warm-up.
It’s a clever chart. But it’s also misleading.
Same Shape, Different Story
This week’s chart overlays the Nasdaq’s performance after the Netscape IPO in 1994 with the Nasdaq’s performance after ChatGPT’s release in late 2022.
Through the same number of trading days, both lines are nearly a perfect match.
Source: Bespoke Investment Group
As you can see, the chart measures roughly 742 trading days after two technological inflection points. Through that window, the Nasdaq gained about 122% after Netscape and about 109% after ChatGPT.
Taken at face value, this must mean that history is repeating… right?
That’s not necessarily the case.
You see, back in 1997, most of the companies powering the dotcom boom weren’t profitable. In fact, many had minimal revenue.
The average dotcom IPO in 1999 had negative earnings and no clear path to cash flow. Their valuations were based on expected website traffic and hoped-for growth. In some cases, startups spent up to 90% of their budget on advertising to build brand awareness rather than focusing on profit.
Today’s AI leaders look nothing like that.
Take Microsoft (Nasdaq: MSFT). In its most recent fiscal year, it generated more than $100 billion in net income. Its cloud division, Azure, continues to post strong double-digit growth, driven in part by AI workloads.
Alphabet (Nasdaq: GOOG) also clears north of $90 billion in annual profit. Google Cloud revenue now runs above $30 billion annually and continues expanding as AI tools get embedded into enterprise software.
Then there’s Nvidia (Nasdaq: NVDA). In its latest reported quarter, revenue surged more than 62% year over year, with data center sales accounting for the vast majority of growth. The company is producing tens of billions in quarterly revenue, with margins most dotcom executives could only dream of in 1999.
Even newer AI companies seem to be faring far better than the vast majority of internet startups in the 90s.
OpenAI has reported a multi-billion-dollar annualized revenue run rate. And Anthropic has raised capital on the back of enterprise demand measured in billions of dollars.
What’s more, AI is embedding itself into the economy much faster than the internet did.
Enterprise customers are already paying for AI copilots inside productivity software, and cloud providers are monetizing AI inference workloads. On the hardware side, semiconductor firms are selling out of high-performance GPUs years in advance.
So, even though that chart looks eerily similar, there’s a big difference between now and then.
The internet boom was a story about future adoption. But today’s AI wave is already showing up in earnings.
Could enthusiasm for the potential of AI be running ahead of reality? Sure. Markets tend to do that.
But this time, the fundamentals are already massive.
Here’s My Take
The Netscape comparison in today’s chart works visually because both periods followed a major technological catalyst.
And the overlay is uncanny.
But when you dig beneath the surface, you can see that the economic engine driving today’s market is completely different.
The dotcom rally was fueled by small, unprofitable companies with untested business models. But the leaders of this cycle are already wildly profitable and deeply embedded in the global economy. These are trillion-dollar companies producing record cash flow.
If anything, this environment more closely resembles the early buildout of cloud computing in the 2010s than the speculative frenzy of 1999.
In other words, today’s market might rhyme with history.
But it’s not replaying it.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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