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Investors Revive Dotcom-Era Tactics to Navigate the AI Bubble
As AI stocks soar and valuations reach dizzying heights, seasoned investors are dusting off a playbook from the late 1990s dotcom boom. The goal? Ride the wave of technological enthusiasm without getting caught in a full-blown bubble.
The U.S. stock market has been on a record-breaking streak, fueled in part by AI chipmakers like Nvidia, whose market value recently surpassed $4 trillion. Yet, the euphoria is tempered by caution. Investors are wary of betting against the AI surge but also reluctant to hold overvalued assets for too long.
Drawing lessons from the 1998–2000 internet boom, hedge funds and asset managers are timing their moves to sell high-flying tech stocks and reinvest in the “next big winners” that the broader market has overlooked. According to Francesco Sandrini, multi-asset head at Amundi, strategies that worked during the dotcom era—shifting from frothy leaders to under-the-radar high-growth opportunities—are seeing a revival in sectors like software, robotics, and Asian tech.
Simon Edelsten of Goshawk Asset Management notes that, historically, the key to navigating a bubble isn’t betting against it but skillfully riding its phases. By investing in companies adjacent to market leaders, such as IT consultants or robotics firms supplying AI giants, investors aim to capture gains as the tech wave spreads, much like buying the “local hardware store” during a gold rush.
Princeton economists Markus Brunnermeir and Stefan Nagel highlight that dotcom-era hedge funds achieved approximately 4.5% quarterly outperformance by exiting overvalued internet stocks early and recycling profits into overlooked sectors. Today, investors hope a similar nimble approach will allow them to enjoy the upside of AI without facing catastrophic losses.
Glossary
- AI Chipmaker: A company that designs specialized processors for artificial intelligence computations.
- Bubble: A market situation where asset prices are significantly higher than intrinsic values, often followed by a sharp correction.
- Magnificent Seven: Term for seven dominant U.S. tech companies leading the current AI-driven market surge.
Investors appear determined to balance risk and reward, leveraging historical playbooks to stay ahead in an era of AI-driven market excitement.
Source: Reuters
