Our AI-Driven Market vs. The 90s Internet Bubble

Hi friends, today I want to compare two moments that feel very similar to me. The first was the launch of the modern internet, marked by Netscape's release in December 1994. The second is the AI boom we're living through today, which really started with the release of ChatGPT in late 2022. Both moments sparked the same reaction: something big just happened, and the world will never be the same. And in both cases, that feeling was right.

After the internet arrived, markets performed extremely well through the late 1990s. In fact, the S&P 500 was up more than 20% every year from 1995 to 1999. But the investing experience wasn't a straight line. Excitement turned into overconfidence, valuations stretched, and eventually the market reminded investors of an important truth: great technology does not guarantee great investment results at any price. Just look at Cisco, which traded at 130 times forward earnings at its peak in early 2000. Their stock just broke even last year, 25 long years later.

Now, let's talk about today. AI is clearly transformational. It's improving productivity, reshaping industries, and driving strong market performance. But just like the late 1990s, leadership is concentrated, narratives are powerful, and emotions are running high. History doesn't say that this is wrong. It just says volatility and rotation tend to come with innovation like this.

Please take a look at this chart that compares the return of the NASDAQ index after the launch of Netscape versus ChatGPT. The returns are almost identical after the first 767 days. The internet boom would then go on to add an additional 450% plus return from there. However, you probably remember what happened afterwards. The bubble burst, and the NASDAQ declined by 79%. While I would love for all of you to gain 450%, I don't want any part of a 79% multi-year decline.

So, the goal isn't to ignore AI, but it's not to go all in either. I do believe that AI is changing our world for the better, and that the entire market will eventually benefit. So the right approach is to stay diversified, stay disciplined, and be prepared for a range of outcomes. At Presilium, we focus on helping our clients benefit from innovation without being dependent on any single theme, through thoughtful diversification, a goals-based plan, and disciplined rebalancing when markets get emotional. Thank you for watching, and I look forward to talking with you next Friday morning.