Tech boom: are we
replaying the 1990s?

Echoes of the dot-com era

The echoes of the late 1990s are hard to ignore. Back then, a surge of technological optimism around the internet sent equity valuations soaring, with market leadership concentrated in the so-called ‘Four Horsemen’. Today, a similar dynamic is unfolding: the AI boom – led largely by the ‘Magnificent Seven’ megacaps – is driving concentrated market leadership, rising valuations and investor enthusiasm.

However, today’s backdrop differs meaningfully from the dot-com era. Unlike their predecessors, today’s tech leaders are highly profitable, with dominant market positions, substantial free cash flow and defensible business models. Valuations appear elevated, but when adjusted for their high sustainable return on equity and growth rates, they appear more grounded than they did during the internet bubble.

That said, signs of froth have started to emerge – non-profitable tech, bitcoin and meme stocks have all surged – but market positioning, sentiment and breadth metrics do not yet reflect the extremes of late 2021, let alone the peak of the 1990s boom. Corrections may occur, but as in the late 1990s, these may be short-lived, giving way to further upside as long as fundamentals hold.

Tariffs and the inflation myth

A key difference in today’s market is the macroeconomic backdrop. A common concern is that rising tariffs – central to the Trump administration’s economic strategy – could reignite inflationary pressures. Yet the data suggests otherwise.

Despite an increase in customs receipts, both core inflation and import prices have remained subdued, trending sideways below 3%. Companies appear to be managing tariff pressures through operational efficiencies and pricing strategies, as evidenced by recent earnings surprises and positive forward guidance. In short, tariffs have yet to meaningfully disrupt inflation dynamics.

Importantly, services inflation – the largest component of the consumer price index basket – continues to ease and is expected to decline further. This moderation, alongside a cooling labour market and fading wage pressures, gives the US Federal Reserve (the Fed) room to support the cycle without fear of reigniting inflation.

Economy losing steam

There’s no denying the US economy is losing steam. Growth in gross domestic product slowed to 1.2% in the first half of 2025, down from 2.8% in 2024. Job creation has dipped below trend, and consumer spending is beginning to soften. But this is not the hard landing many had feared.

Markets are pricing in a soft patch, not a recession. Risk assets continue to signal resilience: high-yield bonds are outperforming, cyclicals are outpacing defensives, and equities are climbing the proverbial wall of worry.

This kind of moderation is precisely the scenario in which the Fed is likely to act. We anticipate a precautionary rate cut later this year – not the start of a deep easing cycle, but enough to keep financial conditions supportive.

Recipe for a melt-up?

If the Fed cuts rates in a non-recessionary environment, it could ignite further upside in equities – just as it did in the late 1990s. Back then, the Fed’s dovish pivot extended the bull run, catalysing a dramatic final leg higher into what would later be seen as a bubble.

Today’s market setup is similarly conducive. Cash is abundant, with money market fund assets near record highs. Credit spreads remain tight, and equity supply-demand dynamics are supportive, with buybacks ongoing and investor positioning still broadly neutral.

However, this environment also invites complacency. Signs of speculative behaviour are growing, particularly in hard-to-value assets. But we do not yet see the kind of extreme investor behaviour – mass retail speculation, widespread use of leverage, or unjustifiable valuations – that marked the bubble peak of 2000.

Investment outlook

We remain constructive on equities for now, with a preference for quality growth and selective exposure to cyclicals. Our base case assumes no recession, policy support via at least one Fed rate cut, and a continuation of disinflation trends.

That said, we caution investors against chasing the hype. While this cycle may ‘rhyme’ with the late 1990s, it is not yet a full-blown replay. Valuation discipline remains critical. Many AI-related companies still lack the earnings to support their prices. This is a time to stay anchored in durable fundamentals – not to be swept up by speculative narratives.

Winners and losers

We believe the AI-driven equity rally has legs and may continue to broaden as policy risk recedes and fundamentals reassert themselves. But this is not a time for blind optimism.

As with the internet boom of the 1990s, there will be winners and losers. Many businesses will benefit from AI, but others will fail to deliver on lofty promises. Investors must separate opportunity from hype – the wheat from the chaff.

We need to stay invested and stay selective. Above all, we must remain focused on what ultimately drives returns: cash flow, operational execution and valuation.