Why today’s tech giants look nothing like the dotcom darlings that burned up on reentry.
KEY TAKEAWAYS
Today’s market isn’t a replay of the dotcom bubble. The fundamentals are stronger–profits, productivity, and innovation are real.
High valuations are a concern, but they rest on cash flow, not fairy dust
Gold and stocks both hitting records reveal mixed market psychology–fear and greed coexisting
AI and big tech firms represent genuine economic transformation, not speculative hype
Investors should focus on sustainable gains, not short-term fireworks
MY HOT TAKES
The comparison to 1999 is overused but useful–today’s speculation is rationalized by real earnings growth
AI is not a bubble–it’s a revolution that’s already being monetized
Greenspan’s “irrational exuberance” still applies, just in a more sophisticated market
Some, not all, crypto and recent IPOs are the modern echo of 90s mania
You can quote me: “Liftoff isn’t the goal–sustainable flight is.”
Liftoff. We live in interesting times. Private companies are sending rockets into space, but not without risk. I am sure you have seen one or two videos where shiny rockets roar off the launchpad with great hope only to explode midair just seconds later. Some hover awkwardly for a few seconds and finally tip and become engulfed in flames. High hopes and large amounts of capital, erased in a flash. 💥
I had a great conversation yesterday with Reuters Veteran reporter Suzanne McGee, who penned an article with one of my favorites Chibuike Oguh on high stock valuations and memories of the dotcom bubble. You can read it here. 👀 It is a great treatise on a topic that has been bouncing around over the past few days–for good reason. Are stocks in a bubble? JP Morgan Boss and market whisperer Jamie Dimon thinks so, and he said as much just yesterday. His comments reflect the growing concern that stocks continue to rise, hitting records and stretching valuations despite a wall of growing macro and geopolitical headwinds.
Yesterday, I wrote about gold and stocks hitting new highs–an unlikely duet. Bullish on gold should be the opposite of bullish on stocks. The big question of the day is: which is right? Read that here if you missed it.
Let’s reflect on all this for a moment. If you lived through the late-1990s, you remember what a real bubble feels like. The air back then was thick with euphoria. You couldn’t swing a PalmPilot without hitting an IPO. Companies with no earnings, and sometimes no revenue, were coming public at billion-dollar valuations. The NASDAQ quadrupled between 1995 and 2000, as investors convinced themselves that clicks, eyeballs, and “new economy” metrics had replaced profits and cash flow. It was an era where valuation discipline was mocked as an outdated relic of the industrial age. Check out this chart and keep reading.
This chart shows a time series of announced IPOs (green line and dots) in the US. I carefully chose the dates to reflect the time leading up to then-Fed Chair Alan Greenspan’s infamous “irrational exuberance” declaration through March 2000 when the dotcom bubble was recognized as popping. During that period there were a total of 3,424 initial public offerings announced. You can see by the chart that there were two surges, one early on in 95/96 leading up to Greenspan's observation, and one in 1998 and 1999 leading up to the burst. Let’s dig further. Check out this chart and keep reading.
This is a chart of IPOs in the “Internet” industry (green line and dots). I am sure that I don’t have to point out the extremely clear surge in deals that started in 1999 through the burst. For the most part there were less than 5 offerings per year leading up to 1999, and the high-water mark reached 30 in September of ‘99. Running down the list of companies that went public during that surge, I noticed a few interesting ones along with a sizable gaggle of companies that have the moniker “.com” or “.net” stamped on the end of their names. Notable members of the surge include Webvan and eToys. The former burned through nearly $1 billion before imploding in 2001, and the latter filed bankruptcy in 2001, but not before reaching an $8 billion valuation, despite never posting a profit. Dotcom poster child Pets.com, which was technically IPET Holdings, announced its IPO in December of 1999 and began trading in February, of 2000. The stock was offered at $11 per share and its final close was less than a year later at around $0.09. Pets.com was famous for its Superbowl Ad sock puppet, but infamous for losing money on every sale–it eventually ran out of money. To be clear there were many companies that went public during that era that had solid business plans, including cash flows, and most of them are still trading today.
Fast forward to today, which looks very different. Expensive, yes. Euphoric, no. The big tech names that dominate indexes are not concept stocks–they are global businesses with super-strong balance sheets and cash flow that would make an oil baron blush. NVIDIA, Microsoft, and Palantir may trade at premium multiples, but they actually earn the money to justify them–or at least defend them. The AI story isn’t a fantasy of the future; it’s already embedded in enterprise budgets, productivity gains, and chip demand.
But to be fair, pockets of speculation are very much present. The recent crop of IPOs, like Fermi and other shiny newcomers, evoke some memories of the late 1990s in their exuberance–priced for perfection before a single profitable quarter. Crypto, too, seems like it lives in its own imaginative universe, a world of promise where reality occasionally stops by… but rarely stays long.
To call the entire market a bubble is to ignore its foundation. Corporate earnings are real. Productivity gains are measurable. Balance sheets are strong. The late-90s market was built on narrative; today’s is built on numbers, albeit expensive ones. This doesn’t mean there isn’t risk. Risks like high valuations, concentration, and sentiment are all flashing yellow, but it’s a different shade of yellow than the blinding neon of 1999.
We are not reliving the dotcom mania, rather, we are living in an age where innovation is actually cash-flow positive. So, where does that leave us? Maybe somewhere between the launchpad and orbit. The economy, like those rockets, is fueled by innovation, but even the best-engineered missions can end in a fireball. The difference between today and the dotcom era is that the engines are stronger–profits, productivity, and genuine technological progress– not just hope and dotcom fairy dust. That doesn’t mean the ride will be smooth. Some of the shiny new rockets will soar, while others will tilt, wobble, and possibly burn. But as long as investors remember that lift-off isn’t the goal, sustainable flight is. With that, we may manage to avoid repeating the spectacular fireball that marked the end of the last era of irrational exuberance.
Oh, and one final thought. Alan Greenspan made his “irrational exuberance” speech on Dec 5,1996. The S&P 500 rose by some 106% before the bubble burst in March 2000.
YESTERDAY’S MARKETS
Stocks gave up early gains to close in the red yesterday. Strong earnings could not carry traders who were lost in the data vacuum caused by the shutdown. Yields gained and gold drifted back below $4000.
NEXT UP
University of Michigan Sentiment (October) is expected to have slipped to 54.0 from 55.1.
Fed speakers today: Goolsbee and Musalem.
Next week is supposed to include inflation numbers and retail sales–extremely important data points for the Fed, but they will be delayed due to the shutdown. We will however get housing numbers and some regional Fed reports, and the start of earnings season, so check back in on Monday to download calendars that will allow you to shine.