If the late 1990s are any guide, the AI boom may still have plenty of room to run.

Many investors have compared today’s AI expansion to the dotcom boom of the late 1990s, when the infrastructure powering the internet was rapidly developed. The comparison makes sense given the enormous amount of capital now being invested to commercialize transformative, potentially world-changing technology. It also feels familiar because technology stocks fueled one of the strongest market rallies in history more than 25 years ago, and similar optimism is now surrounding AI, with investors aggressively raising valuations for companies expected to benefit from the trend.

The Strengths and Weaknesses of the Comparison

Although we don’t view the analogy as perfect — for several reasons discussed below — it is still useful to compare the trajectory of the tech-heavy Nasdaq-100 during the rise of AI with its performance during the early internet era, marked by the launch of Netscape, the first mainstream web browser.

As shown in the chart titled “Based on the Dotcom Era Comparison, the AI Bull Market Seems Fairly Reserved,” the recent climb in the Nasdaq-100 has been far more gradual than the explosive surge seen over a comparable four-year stretch in the late 1990s. From this perspective, the current AI-driven bull market — now approaching four years in duration — could still have significant upside ahead. Since the release of OpenAI’s ChatGPT, the Nasdaq-100 has gained more than 140%, whereas the index soared over 1,090% from Netscape’s debut to the peak of the dotcom bubble in March 2000.

We’re not suggesting history will repeat itself or that the Nasdaq-100 is destined to surge another 900% before collapsing. The broader point is that the market’s current trajectory may be more rational than many assume, and the present environment could resemble 1997 more than the euphoric conditions of late 1999 or early 2000.

Why This Cycle May Be Different

We recognize that “this time is different” can be dangerous language in investing. Still, every historical cycle has unique characteristics. While the AI boom shares some similarities with the dotcom era from a market perspective, the differences may be even more important.

Stronger market leaders.

Today’s dominant AI companies are largely financing the AI buildout through internal cash flow rather than speculative fundraising. Their business models are broader and more durable than the website-centric companies of the dotcom era, while their balance sheets are significantly healthier than those of the fiber-optic equipment firms that led the late 1990s rally. Certain AI niches may display speculative behavior, but those are not the primary drivers of the public markets.

More grounded valuations.

At the peak of the dotcom bubble in March 2000, the technology sector traded at roughly 58 times forward earnings estimates, versus about 25 times today. Back then, investors often focused on “clicks” and “eyeballs” instead of financial fundamentals. In contrast, today’s AI leaders are generally being valued based on revenue growth, earnings potential, and cash flow generation.

More mature IPOs.

Technology IPOs today tend to be larger, supported by established business models and meaningful revenue streams. Even companies that are not yet profitable often have a clearer and more believable path toward profitability than many internet startups did during the dotcom boom.

AI adoption is still in its early stages.

The current phase is centered on building AI infrastructure, while mass AI adoption has only just begun. During the late 1990s, speculative enthusiasm shifted heavily toward consumer internet companies that ultimately struggled to monetize their user bases, even after the infrastructure was built. Today, the eventual winners of the AI adoption phase remain uncertain. However, the financial strength of the infrastructure providers creates a stronger foundation for future AI-driven businesses to emerge.

Summary

There are undeniable parallels between the current AI-driven bull market and the dotcom boom of the late 1990s. Technology stocks are again leading the market, valuations are elevated, speculative pockets exist, and the underlying technological advances could reshape everyday life.

At the same time, there are key differences in the quality of market leadership, valuation discipline, the scale of speculation, and the stage of the technology cycle. Those distinctions suggest the current environment may be more sustainable than the final stages of the dotcom bubble.

Overall, the view remains constructive: this bull market may still have further room to run, with the technology sector continuing to lead. Industrials are also expected to benefit as AI infrastructure expands and adoption accelerates.