AI Hype May Mirror the Craze of the ’90s

• 4 min read

one hand pointing to AI and another putting a pin in a balloon labeled .com
Investors are gaga for AI, just like they were for dot.coms in the ‘90s; will this craze also crash?

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one hand pointing to AI and another putting a pin in a balloon labeled .com

So far this year, the S&P 500 has soared, with much of the run-up driven by excitement over potential profits from companies exploring the possibilities of artificial intelligence (AI).

The broader S&P 500 was up more than 16%, and the technology-laden NASDAQ 100 (NDX) was up 39%—its best performance in the first half of any year. It is worth noting that 28% of S&P 500 companies are weighted toward technology with another 8% in communication and consumer services tied to AI.

Much of this remarkable rally comes in the face of higher interest rates. Technology, and specifically AI, have driven much of this climb, but tech is not immune to higher interest rates. Every growth era in history—and particularly those with expensive stocks—has ultimately been deflated by higher rates. The craze of the late 1990s also fought higher interest rates but ultimately gave way to constraining capital costs—this may parallel a burgeoning AI mania.

While AMG is unsure whether the current AI hype will become a full-fledged mania, it certainly has that look.

While everyone remembers the boom and bust, many forget that a very real profit cycle was attached and—importantly—the internet did have a lasting impact on businesses, profits and humanity. AI may follow a similar path.

Much of the 1990s’ mania stocks were tied to the build-out of the internet and other communications infrastructures. Similarly, AI should be considered a function of the build-out of the cloud (data centers accessed over the internet), which began in 2014 but has accelerated over the past couple of years. Large-scale AI is facilitated by cloud-based computing. AI requires cloud data and the ability to process that data quickly. In the early phases of the cloud build-out, types of AI like large language models such as ChatGPT were not possible, but as the cloud has grown in terms of data and processing power, so have the use cases for AI.

Using the 1990s parallel, it is probably reasonable to assume the build-out of the cloud will continue until both interest rates and excess cloud supply force companies to rein in capital expenditures. Already, capital expenditures for the big four cloud companies—Google, Microsoft, Amazon, and Meta—is five times what it was in 2014. All four have shown a willingness to increase such spending despite economic risks and rising capital costs like interest rates.

It is wise to remember that in the fallout of the
crash, the ultimate winners were not the hardware companies that built the internet but the software companies that operated on it. In today’s environment, winners from the cloud and AI are likely to be firms that help companies in the real economy, including industrials, health care and agriculture, drive efficiency gains to boost profits and margins via unique software.

AI has room to grow far into the future. While the cloud build-out is no longer in its early stages, the AI software explosion is just beginning.

Bottom Line – Investors have multiple ways in which to participate in the AI boom, particularly if they are willing to recognize how broad the impact of AI could reach. For most investors, remembering that more than a third of S&P 500 companies are tied to tech and AI may be enough. For conservative AI investors, patience is likely to be a virtue given the run-up in tech stocks. For more aggressive investors, talk to your advisor about actively managed small- and mid-cap growth investments exploring AI innovations.


Not a client? Find out more about AMG’s Personal Financial Management (PFM) or to book a free consultation call 303-486-1475 or email us the best day and time to reach you.


This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

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