History Repeating? A Closer Look at the AI Boom

Amidst rising concerns of a repeat of the 1999 scenario in US tech markets, the debate intensifies about whether AI constitutes a true bubble. History offers some important signals for investors to consider.

Analysts at Goldman Sachs believe the market is facing increasing risks resembling the dot-com bubble of the early 2000s. While the current situation is still far from the peak of 1999, similarities are beginning to emerge clearly.

Warning Signs from the Dot-Com Bubble: Are They Recurring?

  1. Peak Investment Spending: In the 1990s, spending on tech equipment and software reached unprecedented levels, peaking in 2000. Before the bubble burst, this spending began to decline.
  2. Decline in Corporate Profits: Corporate profits peaked around 1997 and then began to decline, even long before the bubble burst.
  3. Rapid Increase in Corporate Debt: Before the dot-com bubble burst, corporate debt increased significantly, with the debt-to-profit ratio peaking in 2001.
  4. Interest Rate Cuts by the Federal Reserve: In the late 1990s, the Federal Reserve was in a rate-cutting cycle, which contributed to fueling the stock market.
  5. Widening Credit Spreads: Before the bubble burst, credit spreads widened significantly, indicating increased risk in the market.

Although these signals appeared at least two years before the dot-com bubble burst, they offer valuable lessons for investors at present. Investors should closely monitor these indicators to assess the potential risks in the AI market.


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