Market Perspective - Tech extended short term but far from bubble extremes.

What happened

What a difference a year makes for the technology (tech) sector. After a challenging 2022, which saw the sector pull back 34% from its peak, tech has roared back, gaining 35% this year. The tech rally, which began on optimism around cost cutting, has gained further traction on the buzz around artificial intelligence (AI).

ChatGPT’s rollout made AI more tangible – something Nvidia’s CEO called equivalent to the “iPhone moment” in terms of its impact on the world during its blowout earnings call. This garnered further investor excitement.

There has also been an increasing number of companies discussing potential benefits of AI, leading at times to a pop in the stocks, some warranted, some not. The recent excitement in tech and AI has drawn comparisons to the late 1990s and the internet revolution. Back then, a company would often see its stock pop by simply adding a “.com” to its name.

Investors also remember after tremendous moves higher, the bubble eventually burst. Many companies subsequently failed, and the broader tech sector saw an 80% drop from its peak in 2000 to its trough in 2002.

Our take

Today, the tech sector is trading at a premium to the market, and some individual stocks are arguably in bubble territory. However, from a broader perspective, we see notable differences in returns and valuations between the ultimate dotcom technology top and today.

Here we compare the peak returns near the end of the tech bubble relative to recent returns:

• 3-month return of 69% versus 20% currently
• 1-year return of 113% versus 27% currently
• 3-year return of 356% versus 91% currently

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