Parallels and differences between AI boom and dotcom bubble

Wall Street's concentration in the red-hot tech sector is, by some measures, greater than it has ever been, eclipsing levels hit during the 1990s dotcom bubble. But does this mean history is bound to repeat itself?

- By Jamie McGeever

The growing concentration in US equities instantly brings to mind the internet and communications frenzy of the late 1990s. The tech-heavy Nasdaq peaked in March 2000 before cratering 65% over the next 12 months. And it didn't revisit its previous high for 14 years.

It seems unlikely that we'll see a repeat of this today, right? Maybe. The market's reaction function appears to be different to what it was during the dotcom boom and bust. Just look at the rebound from its post-“Liberation Day” tariff slump in early April — one of the fastest on record — or its rally during the pandemic.

But despite these differences, there are also some worrying parallels. Investors would do well to keep both in mind.

The most obvious similarity is the concentration of tech and related industries in US equity markets. The broad tech sector now accounts for 34% of the S&P 500's market cap, according to some data, exceeding the previous record of 33% set in March 2000.