A U.S. stock rally supercharged by excitement over artificial intelligence is drawing comparisons with the dotcom bubble two decades ago, raising the question of whether prices have again been inflated by optimism over a revolutionary technology.
Valuations have grown as well, though many tech champions appear to be in far better financial shape than their dot-com counterparts of the late 1990s and early 2000s. Other measures, such as investor bullishness, have yet to reach the frothy heights of the turn of the century. “No one exactly knows what will happen with artificial intelligence,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, noting the same uncertainty about the eventual long-term winners.
The difference is clear in the valuations of Nvidia and Cisco, a key provider of products supporting internet infrastructure, whose stock has yet to rescale its peaks of the dotcom boom. Forward earnings per share in sectors containing today’s market leaders - tech, communication services and consumer discretionary - have been growing faster since early 2023 than the rest of the market, a Capital Economics analysis showed. By contrast, expected earnings in the sectors grew at a similar pace to the rest of the market in the late 1990s and early 2000s, while their valuations soared faster than for other stocks.
Dotcom investors were much more euphoric by some measures. Bullish sentiment in the widely followed American Association of Individual Investors survey, often seen as a worrisome indicator at high levels, reached 75% in January 2000, just months before the market peaked. It recently stood at 44.5%, compared to its historical average of 37.5%.
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