Tech Stocks’ Huge Gains Aren’t a New Dotcom Bubble

• Tech stocks’ huge gains shouldn’t make investors fear dot-com 2.0, analysts say.
• Key differences, like the profitability of mega-cap tech firms, distinguish today’s hype from 1999. 
• “We on Wall Street like to go back and look at the past peril, [and say] it’s going to be exactly the same.”

Tech stocks are flying higher seemingly every day, and the market is brimming with hype over artificial intelligence. It’s leading some analysts to say the stocks notching the biggest gains are way overvalued and in a bubble. 

So, are markets in for a redux of the 2000 dot-com crash?

Two decades ago, the internet lit a fire under Wall Street, boosting the stock market with tech-fueled exuberance. Excitement that the internet was going to change everything catapulted tech shares to meteoric highs. 

That probably sounds familiar to anyone watching the market today. Substitute the “internet” with “AI” and you get to 2024, and it’s why some experts have been sounding the alarm about a possible dot-com 2.0.

Yet those fears may be overblown, market experts say. There are key differences that distinguish today’s tech hype from the late 1990s, like the profitability of mega-cap tech firms in 2024, as well as the wider financial environment. 

Here’s why we’re not in for a repeat of the dot-com crash. 

Today’s hype is fundamentally different

For some tech bulls, the hype is real for one clear reason: AI is simply a game changer. 

“AI is the biggest tech trend we have seen since the start of the Internet in 1995,” Wedbush’s Dan Ives wrote in an email to the Business Insider. “I have been an analyst since late 90’s covering tech, this is not a bubble it’s the start of the AI Revolution.”

But it goes beyond that. The dot-com crash happened even though the internet was revolutionary. It’s today’s financial backdrop that’s also quite different.

“Bubbles are created in froth,” BMO’s chief investment strategist Brain Belski told the Business Insider. “Just because stocks go up does not mean it’s a bubble. I think people are shortsighted just looking at things like performance because to have a crash means that you need froth and excess.”

That froth and excess has historically been defined by financing, Belski explained. That’s something that was true in the 90s, when finance firms, banks, and brokerages poured money into dot-com companies. The relative dearth of new IPOs marks a big difference between today and the dot-com era. 

“Underpinning that entire period was IPOs,” Quincy Krosby from LPL Financial Management said. “I mean, investment banking were beneficiaries of this phenomenon, and it tends to perpetuate itself.”

In the 90s, companies that hadn’t yet generated revenues, profits, or even created a finished product, were charging into the IPO market. Investment banking surrounding the “new paradigm” was booming. Stock prices would triple and quadruple in a day. 

“The difference was back then it was a promise,” Krosby said. 

Not today. Companies like Nvidia, Meta, and Microsoft have grown astronomically, yes. But those companies are “rock solid” in terms of their balance sheets, Krsoby explained.

“Over the last several years, the vast majority of the Magnificent Seven’s stock return was driven by profit growth, not multiple expansion,” Philip D. Lorenz, senior Equity Analyst at CIBC Private Wealth US, said. 

The market has been rewarding the deliverance of those promises of growth: Meta’s stock soared 20%…