Is AI going to create an even bigger boom than the dot comm era?
Wedbush strategists said Monday that Wall Street is still underestimating the artificial intelligence boom. Cloud and AI-driven spending can fuel the tech sector into a new bull market in 2024, in their view. “We view AI as the most transformative technology trend since the start of the Internet in 1995.”Dec 4, 2023
If you have been following the news at all during the past year you have probably heard Wall Street reporters and analysts discuss AI and its potential to change the way we work.
Currently, it is predicted that over 1 trillion dollars will be invested into AI over the next decade and this is not fully appreciated by the market or reflected in in the market price of companies leading AI.
In a recent analysis, a team led by strategist Dan Ives has projected tech stocks to lead the market higher in 2024, fueled by escalated commitments to AI and cloud technology. This surge in spending, Wedbush anticipates, will eclipse traditional IT budgets.
“We are on the cusp of a new tech bull market, where we foresee tech stocks soaring by 20% or more in the coming year. This surge, predominantly driven by Big Tech, will ride the wave of an AI spending spree across the broader tech sector,” Ives noted.
The report draws a parallel between the impact of AI on business and technology and the revolutionary advances that the creation of the internet brought. With this it looks like AI could drive a boom similar to what we previously saw internet-focused companies do starting in the late 90’s.
The cyclical nature of the tech industry, marked by its booms and busts, is well-documented. The dot-com bubble of the late 1990s and early 2000s, for instance, serves as a precedent illustrating how new technologies can fuel rapid market gains and create investor enthusiasm, often followed by corrections. However, the underlying strength of these tech advances, whether it be the internet then or AI now, reshapes industries and creates new opportunities for the wise investor.
Companies like Nvidia, Microsoft, Datadog, and Palantir are already demonstrating the expanding applications of AI across various sectors. The momentum in AI utilization is expected to accelerate further.
Wedbush’s top picks in the tech domain include Apple, Microsoft, Palo Alto Networks, Palantir, Zscaler, CrowdStrike, and MongoDB. Consumer tech segments also present lucrative opportunities, with Amazon, Alphabet, and Meta Platforms positioned as key players.
“In our view, AI represents the most significant technological shift since the dawn of the Internet era in 1995. The predicted $1 trillion AI investment over the next decade is still not fully appreciated by the market. This investment will be a windfall for the chip and software sectors, with Nvidia and Redmond at the forefront,” the strategists concluded.
Looking at AI’s potential within the historical context of past tech booms and busts, this perspective offers a more insightful understanding of the current excitement surrounding AI in technology. Right now we are at the start of the AI movement with companies learning how they can employ this technology and are making strategic investments in AI and promoting it to their shareholders. The full benefits have yet to be realized as they navigate this emerging technology.
Lessons learned from the Dot Comm boom and bust
The late 1990s marked an extraordinary period in the history of technology and business, known as the Internet boom or the dot-com bubble. There was a rapid rise in the stock market fueled by the growth of the Internet and technology-related businesses. Share prices on internet stocks saw huge swings with enthusiasm for the potential for many companies to make future profits despite many companies having negative earnings.
Some companies emerged as success stories, becoming giants in the industry, others fell and and faced a starkly different fate.
The Successes
- Amazon – Initially an online bookstore, Amazon quickly expanded its product range and became a one-stop shop for online retail. Its success was driven by its innovative business model, customer-centric approach, and effective use of technology. Today, Amazon is a global powerhouse in e-commerce and cloud computing.
- eBay – Launched in 1995, eBay revolutionized the concept of online auctions and marketplaces. Its unique business model, connecting buyers and sellers globally, proved immensely successful, and eBay remains a significant player in the e-commerce space.
The Failures
- Yahoo! – Yahoo! started as a search engine and web directory and evolved into a full-fledged internet portal, offering a range of services from email to news. During the dot-com boom, Yahoo! was one of the most popular sites on the web, and its early adaptation to the internet landscape was key to its success. It grew to a valuation of over 125 billion dollars in 2000, and following the tech bubble in 2002 its valuation decreased to 10 billion, in 2017 the company was purchased by Verizon for 4.5 billion and later sold to Apollo Funds.
Learning from the Dot Comm Legacy
The internet boom and bust of the 1990s highlighted the importance of sustainable business models, financial management, and the need to balance rapid growth with long-term strategy to obtain profitability.
The businesses that survived are some of the biggest names in the tech sector. This also serves to highlight an invaluable lesson for investors, and how excitement for current trends can fade away as people start to look closely at business practices and viability.
