Is the Dot-com bubble making a comeback? Mega-cap tech stocks surpass small caps with unprecedented performance levels in 20 years.
Despite the record highs that major stock market indices have reached since the beginning of 2024, along with the growth of the artificial intelligence (AI) sector led by semiconductor giant Nvidia (NASDAQ: NVDA), there are concerns about the current trends. A significant concentration of stock market returns, similar to the period before the Great Depression, has been observed in the current big tech bull market, as reported by Finbold in February. More recently, it has been discovered that mega-cap technology stocks, particularly blue-chip firms like Nvidia and Microsoft (NASDAQ: MSFT), are outperforming smaller companies to a degree not seen in the past 25 years.
This trend is particularly worrisome because it resembles the situation during the Dot-com bubble, as highlighted by Barchart, the platform that initially provided the data. Furthermore, this is not the first time that similarities have been drawn between the current state of technology stocks and the Dot-com era. In early April, Albert Edwards, a global strategist at banking giant Société Générale (EPA: GLE), expressed his concern that the AI boom has already created a dangerous bubble. Edwards is known for correctly predicting the start of the Dot-com crash 25 years ago. He also mentioned that one of the factors contributing to the bubble is the Federal Reserve’s lack of sufficient restrictions, despite interest rates being at multi-decade highs.
There are several systemic risks accumulating within the U.S. economy. While the technology boom is both frightening and exciting, there are two worrisome aspects: the fluctuating inflation rates and the growing national debt. The latter has reached a staggering $34 trillion in total, equating to approximately $101,000 per capita by the end of 2023. The International Monetary Fund (IMF) recently issued a stern warning to the United States, stating that “something will have to give.”
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