I thought it would be interesting to take a look at the late 1990’s Dot Com era and see how it compares to the current AI era. There are some similarities that I see, particularly with investors’ mindsets, that make me think history will repeat itself. But there are also some key differences that could keep the AI era from suffering the same fate as the Dot com era. Here’s what I am seeing:
What’s the same
Transformational Change – In the 90’s, the internet was changing how businesses interacted with customers. We went from going to brick and mortar stores to sitting at a computer to transact business. Today, AI is involved not only on the transactional side of business, but also the marketing, manufacturing, research, and almost every aspect of business today.
Fear Of Missing Out (FOMO) – You couldn’t go to a party, restaurant or pretty much any social gathering without hearing someone talk about how well their Dot Com investments were doing. This caused a great deal of FOMO among both retail and institutional investors. If there was a “.com” at the end of a company’s name, you wanted to own its stock. Now, investors are lining up to buy any company that is involved in AI infrastructure and willing to pay a premium for them.
What’s different
Earnings – The Dot Com era ushered in an incredible number of companies that went public based on hype and the promise of amazing revenue and profits. Many had no revenue but the push to get their stock publicly traded was so great that they rushed to the markets. The insanity was that investors couldn’t get enough of them. Of course, once reality set in, these companies went bankrupt, and investors lost everything. Now, most companies involved in AI are already well established (Microsoft, Amazon, Google, Nvidia, Meta, etc.) and are very profitable already.
Behind the Scenes – AI is helping make companies more efficient, productive, and profitable by improving operations and procedures behind the scenes. It is involved in almost every aspect of a company’s business whereas in the Dot Com era, the internet was more concentrated in just the sales and marketing sectors.
Far Reaching – Back in the 90’s the internet focused mainly on the interphase between businesses and consumers. Today, AI is not only involved there, it is changing nearly every aspect of every industry. In health care for instance, AI can read x-rays, CAT scans, and biopsy slides with incredible accuracy, detecting and diagnosing diseases faster. In the forest fire arena, AI is now being used to detect fires much quicker than humanly possible. California has 1,000 cameras monitoring their forests using AI. The money, manpower, and property saved by employing AI is immense. Now, extrapolate that across every industry and you can see why AI is a game changer.
That being said, it does seem that the markets might be getting ahead of themselves in this AI era. But it is nowhere near the frenzied euphoria that caused the Dot Com era bubble to burst…..for now.
Please comment or send an email if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassemanagement.com
