Nasdaq Approaches Longest Rally Ever... 'AI Following the Legacy of the Dotcom Bubble?'

The Nasdaq index, centered on U.S. technology stocks, has been on an eight-week consecutive rally, on the verge of breaking the record for the longest weekly gain in history. The AI boom, represented by 'ChatGPT,' has driven the Nasdaq's bullish market, but opinions are divided on whether this rally will continue. Some argue that the current upswing resembles the prelude to the biggest crash in Nasdaq history during the 2000 'Dot-com Bubble' burst caused by frenzied sell-offs.

The Nasdaq Composite Index of the New York Stock Exchange closed higher for eight consecutive weeks as of the 16th (local time), marking the longest streak since April 24. This is the longest weekly rally since the all-time record of 10 consecutive weeks four years ago. Compared to the beginning of the year, the index has surged nearly 31%, surpassing the S&P 500's 15% increase.

The recent technology stock rally has been fueled by the AI frenzy surrounding generative AI technologies like ChatGPT that create text, images, and videos. Generative AI, such as ChatGPT and Google's 'Bard,' has rapidly emerged as an innovative technology shaking the global industry, raising expectations that AI holds powerful potential to completely transform our society, which has driven technology stock prices higher.

In particular, major large-cap tech stocks like Nvidia (192%), Meta (134%), and Tesla (112%) have led the rebound with their stock prices doubling or tripling compared to the start of the year. Wall Street had declared the Nasdaq bull market, which lasted over a decade since the 2008 global financial crisis, ended with the conclusion of the COVID-19 pandemic, but contrary to these expectations, the generative AI boom has lifted the Nasdaq.

However, opinions are divided on whether this technology stock rally will be long-lasting or collapse like the past Dot-com Bubble. Individual investors are betting on further gains. According to Bandari Research, Tesla was among the net purchase stocks by individual investors last week. In the options market, investors most anticipated further gains in large tech stocks such as Tesla, Nvidia, AMD, Apple, and Meta. Dan Ives, an analyst at Wedbush Securities and a Tesla bull, said, "This rally is different from the tech stock surge just before the 2000 Dot-com Bubble collapse."

Nevertheless, there are many skeptical views that AI tech stocks are moving more on expectations than actual substance. Jason Fryd, head of investment strategy and research at Glenmede, an asset management firm based in Philadelphia, pointed out, "Historically, in the early stages of innovative technologies, the focus has been more on exaggerated promotion and hope rather than long-term prospects." In that regard, it remains uncertain whether AI innovation will translate into actual corporate profits. Mike Lowengart, portfolio manager at Morgan Stanley, emphasized, "The AI boom is a real factor driving tech stocks and this market, but technological innovation does not always lead to profits."

[Image source=Reuters Yonhap News]

The monetary policy direction of the U.S. Federal Reserve (Fed) is also a variable. So far, expectations that the U.S. tightening stance is nearing its end have supported the rise of interest rate-sensitive tech stocks. The market still expects the tightening cycle to conclude after a pause in rate hikes in June, followed by one more increase in July. The recent decline in international oil prices also contributes to easing inflationary pressures and expectations of a rate hike pause. Regarding this, Brad Conger, deputy head of investments at Hirtle Callaghan, said, "The market is basically telling the Fed, 'We don't trust you,' and does not believe in the Fed's willingness to raise rates further."

However, after last week's Federal Open Market Committee (FOMC) regular meeting, the Fed's indication of 'two additional hikes within the year' has been viewed as a negative factor by some in the market. The WSJ pointed out, "If inflation does not subside as quickly as the Fed desires, additional rate hikes could put a brake on the stock rally."

This content was produced with the assistance of AI translation services.