Fears of a tech bubble have it backward. Stocks can keep going.

Oracle’s near 40% one-day surge last week on a bullish forecast stirred up memories of that frothy period—and some concern about excess AI optimism. But there is a big difference between now and the stock market party of 1999: Companies now are making real money.

Back then, “the price performance was insane,” said Dan Greenhaus, strategist at Solus Alternative Asset Management. “Stocks were splitting multiple times a year because the appreciation was so great.”

“Everything was going public, whether they had any sales or not. There was a level of enthusiasm across markets and sectors that really doesn’t feel similar to today.”

Today’s major tech companies are pricey, but nowhere close to “dot-com bubble valuations,” Greenhaus said. The bull market could run longer.

Famously, former Federal Reserve Chair Alan Greenspan used the term “irrational exuberance” to describe elevated asset prices in December 1996, years before the market peaked.

Tech stocks tied to AI are benefiting from real impacts on their earnings. Market darling Nvidia “keeps going up in general, but it isn’t getting more expensive,” Greenhaus said. The stock’s rise is driven by “extreme earnings and sales revisions,” not just valuations, he said.

Oracle’s big stock move came after the company reported an AI revenue forecast much stronger than the market expected. It now sees its cloud infrastructure revenue reaching $144 billion over the next four years, up from a projected $18 billion this fiscal year.

The companies driving the market today “have so much excess cash flow that they’re buying back their stock,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.

“They can still spend on capital expenditure and research and development, and they still have plenty of money to buy back their stocks. That was the exact opposite of the tech bubble,” Rieder said.

Rieder said AI adoption is “an extraordinary expenditure that is changing the economic landscape” with the power to bring about huge gains in productivity.

The breadth of the AI trade is also much greater than the internet and Y2K focused trade of the late 1990s and early 2000. Stocks that were considered “old economy” at the time traded with low valuations, while internet-related plays commanded sky high premiums.

The market is treating AI innovation differently. Evercore ISI describes its influence on stocks as a “participatory democracy,” with the potential to benefit the companies that create it, support it, and use it. AI can create winners across industries, well beyond tech. The firm notes that a quarter of companies are adopting AI just three years after the public launch of ChatGPT.

During the last two years of the tech bubble, more stocks were going down daily than were rising, signaling a serious deterioration in the health of the market, according to Evercore ISI. That is opposite what is happening now, with more stocks advancing, taking indexes higher.

The broader profit picture is also different.

“Intel, Sun Micro, Cisco, Microsoft, the big guys were profitable then. It was the huge satellite of peripheral companies that weren’t profitable,” Greenhaus said.

Amazon, one of the tech heavyweights in the Magnificent 7, wasn’t profitable during the tech bubble. Its first quarterly profit was in 2021.

“The best money wasn’t made on the companies that were building the internet. The best money was made on the companies that became the business because of the internet. Amazon, for instance,” Greenhaus said.

Liz Ann Sonders, chief investment strategist at Charles Schwab, said she is seeing some signs of froth in the market. But she believes the bull market will continue.

“When sentiment gets to the frothier end of the spectrum, that sentiment can last for a long time,” said Sonders.

While the Magnificent 7 stocks have fueled much of the gains in the S&P 500, the tech giants, including Alphabet, Microsoft, Amazon and Meta, aren’t the biggest gainers in the stock market this year, she notes.

Meta is the best performing Mag 7 stock in the S&P 500, but it is the 57th best performing stock in the S&P, while Alphabet was 58th, according to Schwab.

Sonders said she currently isn’t recommending specific sectors, or even just high-quality stocks.

She sees “opportunity a little bit down the quality spectrum into some of the more value-oriented areas, but you don’t want to sacrifice decent growth opportunities.” She looks for factors like positive earnings revisions, positive earnings surprises, low price-to-book, low-price-to-sales, and amount of free cash flow.

Some strategists have been expecting a correction to tamp down some of the market’s enthusiasm. Sonders said there has been a rolling correction across the market.

She notes the S&P 500 was down 19% at its low point this year, while at the average member level, the drawdown was 25% from the year-to-date highs. The S&P quickly recovered and went on to set new highs.

Sonders said the biggest gainers of the Nasdaq currently include small, lesser-known stocks. “There are retail traders’ fingerprints all over this market move. They are sort of full steam ahead—and they buy the dip, buy every little dip. And so at some point you could argue, the music ends. But it could last awhile.”

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