Since April 8, the Nasdaq has risen roughly 40% amid a decade-long technology bull market driven by cloud computing, streaming, digital advertising, pandemic-era device demand, work-from-home trends, and the surge in generative AI after ChatGPT. Technology growth stocks now trade at elevated valuations relative to other sectors, creating parallels to the late-1990s dot-com bubble. The dot-com era ended with a prolonged bust that produced a 78% Nasdaq drawdown from its 2000 peak. Technology enthusiasm often translates into frothy valuations, increasing the risk of a significant market reversal if sentiment shifts.
Investors have ridden an incredible recovery from the April 2 "Liberation Day" tariff surprises. Since the April 8 low, the Nasdaq Composite (NASDAQINDEX: ^IXIC) has appreciated an incredible 40%. And of course, that recovery has taken place amid a decade-long bull market in technology growth stocks. It's easy to understand why. Society is becoming more digital and automated. The last 10 years have seen the emergence of cloud computing, streaming video, digital advertising, the pandemic-era boom in electronic devices and work-from-home, all topped off by the introduction of generative artificial intelligence (AI) marked by the unveiling of ChatGPT in late 2022.
In several ways, technology stock performance and valuations are currently mirroring the extremes of the dot-com boom of the late 1990s. Unfortunately, we all know how that period ended, with a terrible "bust" that sent the Nasdaq tumbling three years in a row, eventually culminating in a 78% drawdown from the March 10, 2000, peak. How frothy are tech stocks? Technology innovation can be very exciting; however, that excitement often finds itself in the form of high valuations.
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