Oracle\u2019s near 40% one-day surge last week on a bullish forecast stirred up memories of that frothy period\u2014and 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.<\/p>\n
Back then, \u201cthe price performance was insane,” said Dan Greenhaus, strategist at Solus Alternative Asset Management. \u201cStocks were splitting multiple times a year because the appreciation was so great.”<\/p>\n
\u201cEverything was going public, whether they had any sales or not. There was a level of enthusiasm across markets and sectors that really doesn\u2019t feel similar to today.”<\/p>\n
Today\u2019s major tech companies are pricey, but nowhere close to \u201cdot-com bubble valuations,” Greenhaus said. The bull market could run longer.<\/p>\n
Famously, former Federal Reserve Chair Alan Greenspan used the term \u201cirrational exuberance” to describe elevated asset prices in December 1996, years before the market peaked.<\/p>\n
Tech stocks tied to AI are benefiting from real impacts on their earnings. Market darling Nvidia \u201ckeeps going up in general, but it isn\u2019t getting more expensive,” Greenhaus said. The stock\u2019s rise is driven by \u201cextreme earnings and sales revisions,” not just valuations, he said.<\/p>\n
Oracle\u2019s 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.<\/p>\n
The companies driving the market today \u201chave so much excess cash flow that they\u2019re buying back their stock,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.<\/p>\n
\u201cThey 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.<\/p>\n
Rieder said AI adoption is \u201can extraordinary expenditure that is changing the economic landscape” with the power to bring about huge gains in productivity.<\/p>\n
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 \u201cold economy” at the time traded with low valuations, while internet-related plays commanded sky high premiums.<\/p>\n
The market is treating AI innovation differently. Evercore ISI describes its influence on stocks as a \u201cparticipatory 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.<\/p>\n
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.<\/p>\n
The broader profit picture is also different.<\/p>\n
\u201cIntel, Sun Micro, Cisco, Microsoft, the big guys were profitable then. It was the huge satellite of peripheral companies that weren\u2019t profitable,” Greenhaus said.<\/p>\n
Amazon, one of the tech heavyweights in the Magnificent 7, wasn\u2019t profitable during the tech bubble. Its first quarterly profit was in 2021.<\/p>\n
\u201cThe best money wasn\u2019t 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.<\/p>\n
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.<\/p>\n
\u201cWhen sentiment gets to the frothier end of the spectrum, that sentiment can last for a long time,” said Sonders.<\/p>\n
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\u2019t the biggest gainers in the stock market this year, she notes.<\/p>\n
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.<\/p>\n
Sonders said she currently isn\u2019t recommending specific sectors, or even just high-quality stocks.<\/p>\n
She sees \u201copportunity a little bit down the quality spectrum into some of the more value-oriented areas, but you don\u2019t 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.<\/p>\n
Some strategists have been expecting a correction to tamp down some of the market\u2019s enthusiasm. Sonders said there has been a rolling correction across the market.<\/p>\n
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.<\/p>\n
Sonders said the biggest gainers of the Nasdaq currently include small, lesser-known stocks. \u201cThere are retail traders\u2019 fingerprints all over this market move. They are sort of full steam ahead\u2014and they buy the dip, buy every little dip. And so at some point you could argue, the music ends. But it could last awhile.”<\/p>\n
Write to editors@barrons.com<\/p>\n","protected":false},"excerpt":{"rendered":"Oracle\u2019s near 40% one-day surge last week on a bullish forecast stirred up memories of that frothy period\u2014and…\n","protected":false},"author":2,"featured_media":34333,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[26930,3468,72,26933,61,60,123,1673,26932,2234,26931],"class_list":["post-34332","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-ai-optimism","tag-amazon","tag-business","tag-earnings-revisions","tag-ie","tag-ireland","tag-markets","tag-nvidia-corp","tag-oracle-stock-surge","tag-stock-market","tag-tech-bubble"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/34332","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=34332"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/34332\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/34333"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=34332"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=34332"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=34332"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}