Key Points
- Tech companies’ valuations are now driven primarily by AI performance rather than their traditional core businesses like e-commerce, cloud computing, or social media engagement.
- The AI boom has fueled a nearly three-year market rally, similar to the late 1990s internet surge, with investors giving nearly all major tech stocks “AI valuations.”
- Analysts warn of potential risks — since all major tech firms are now tied to a single theme (AI), a downturn in that sector could trigger a simultaneous decline across the entire market.
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Summary
Among the major changes that 24/7 host Doug McIntyre has noticed since the AI boom is that companies like Meta, Microsoft, Amazon, and Oracle no longer trade based on the fundamentals of their traditional businesses but instead on their performance in artificial intelligence. He explains that, in the past, investors evaluated these companies by their core divisions — such as Amazon’s e-commerce and cloud services or Meta’s user engagement and ad revenue — but now AI success dictates their market value. Lee Jackson agrees, adding that it’s been nearly three years since ChatGPT’s release, which ignited a massive rally in tech stocks. He mentions that companies tied to AI have seen enormous gains, citing examples like Applied Digital, which pivoted from crypto mining to AI data centers.
Doug points out that this AI dependency is risky because if AI stumbles, all major tech stocks could fall simultaneously. Previously, individual companies were affected by performance in their specific sectors, but now they rise and fall together based on AI sentiment. Jackson compares this moment to the dot-com boom of the late 1990s, where enthusiasm for a single technological trend drove valuations beyond reason. He warns that while AI has real applications and efficiencies, especially in replacing menial tasks, there will eventually be a “reckoning.”
Transcript
Doug McIntyre:One of the things that impresses me right now about what’s going on with AI is, is if you take some of the really big tech companies, now, I’ll take meta, Microsoft, Amazon, Oracle. They really do not trade on the fundamentals of their core businesses anymore. So if you said to me two years ago, what kind of stock is Microsoft? Why is it up or down, you’d tell me, well, they’ve got two business units, this and this. And depending on how those perform, you know, if we moved over to Amazon, it’s Amazon Web Services and it’s E-commerce. Go to Meta, it’s number of eyeballs and you know, on multiple products month, you know all this stuff about how many people they have on Facebook and Instagram and who goes there and you add that up and divide it by the ad revenue. Google was one number “search” that sort of, eventually you got YouTube. But as far as I’m concerned, those companies now trade primarily on their success or lack of success in the AI business, not on what you and I would consider was in some cases for decades, their core businesses and competence.
Lee Jackson:Right, right. No, I, I think you’re exactly right because I think, you know, it’s been three years and I had to even look this up ’cause I wasn’t exactly sure. It’ll be three years in November since ChatGPT came out, you know, and the huge and that kicked off the rally that we’re still in, despite the fact that we had a 20% correction. I mean, this has been almost a three year all out, you know, full speed ahead rally. And, you know, we’ve had our share of winners. I’m looking at run right now. Our, our valves had Applied Digital, which stopped, which stopped mining, uh, crypto to open data centers is now $28. We recommended it at six or something like that, a year or so. But we’re winners. I think you’re right. Everything’s getting an AI valuation. And so how, how are you a player in that?
Doug McIntyre:One of the things I don’t like about it is, is if AI has a problem, your big, big mega tech cap stocks all fall apart at the same time. If you and I were trading Amazon based on AWS and E-commerce and Microsoft based on cloud and you know their gaming platforms or something. Then you could say, well, listen, if e-commerce got into trouble, that doesn’t mean that Microsoft and Apple get hit. Now, those business units don’t carry the water for these companies valuations. For the first time in my memory, all of the major tech companies are traded on based on one premise, a single premise. And that is how do they do an artificial intelligence.
Lee Jackson:Right. Whereas 25 years ago, how will they do on the internet?
Doug McIntyre:And then eventually that moved over to e-commerce in the cloud, moved over to Facebook, and how many people visited your Facebook site and those things.
Lee Jackson:Well, I think, I think one of the issues that you see is that, is that it’s clearly helping and companies are starting to employ it as they unemployed workers because it’s, it’s taking care of a lot of menial tasks that you don’t have to pay somebody to do. But the interesting thing is, it’s like 25 years ago, I mean. I was there and I saw it all. ’cause I was at Bear Stearns during all of the, up until 2000. And then I went to Lehman Brothers and I was in the thick of it there because Dan Niles was the one making calls at Lehman Brothers there. And he top ticked everything. He top picked everything in terms of saying, oh, it’s time to go all in. It’s time to go all in. But, it’s similar. And that ran a long time. That really ran from like 97, 98, 99, it ran for three and a half, four years before it actually blew up. And, and I think there’s gonna be a reckoning here somewhere. I don’t think big tech will go out of business, but boy, they can get hit hard considering where they’re trading at.