As the artificial intelligence boom has picked up steam over the past few years, firms like Nvidia (NVDA), Microsoft (MSFT), and Meta (META) have notched some astronomical gains. And many investors are left kicking themselves for ‘missing out’ on the AI revolution.
But did you know that the biggest gains in this boom are likely still to come?
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Many industry experts note the striking similarities between today’s AI Boom and the Dot Com Boom of the 1990s. And that comparison feels spot-on to us.
The internet was a revolutionary technology that proliferated throughout the global economy and changed everything about how we work, play, travel, communicate… It changed everything about everything.
And when it comes to AI, just lather, rinse, and repeat.
AI is another revolutionary technology proliferating throughout the global economy – and changing everything about everything.
As revolutionary technologies go, AI and the internet have very strong parallels.
And the AI and Dot Com Booms also have very strong parallels on Wall Street.
AI and the Internet: Striking Parallels
In 2023 – the first year of this AI Boom – the S&P 500 rose more than 20%. And it rose more than 20% once again in 2024, meaning the market has soared 20%-plus two years in a row.
The last time it did that? In 1995 and ‘96 – during the first two years of the Dot Com Boom.
Take a look at the S&P’s price action over the past two years as well as in 1995 and ‘96. As you can see in the graph below, those lines match up almost perfectly.
In today’s AI Boom, stocks are following the exact footsteps they made in the Dot Com Boom.
And of course, the 1990s’ market boom played out in two phases: first it was all about the ‘Builders,’ then the ‘Appliers’ took the baton.
That is, when the internet first emerged, telecom companies rushed to build the infrastructure needed to support the internet’s buildout. This was the Builder phase – Phase 1.
And it’s why, in the 1990s, the Dot Com Boom’s biggest winners were internet ‘Builders’ – the companies establishing the net’s infrastructure.
Indeed, from 1995 to ‘99, Qualcomm (QCOM) rose almost 6,000%. AppliedMaterials (AMAT) popped about 1,000% over that same stretch. Semtech (SMTC) rocketed almost 7,000% and VeriSign (VRSN) soared about 3,000%.
These were internet Builder stocks – and they stole the show during Phase 1 of the Dot Com Boom.
But they aren’t the winners that we think of today when it comes to the Internet Revolution.
Instead, Amazon (AMZN), Netflix (NFLX), Meta, Alphabet (GOOGL),and Microsoft are top-of-mind. These are some of the largest and most powerful companies in the world. And yet, none were internet-builders.
They are the ‘Appliers.’
The Boom’s ‘Phase 2’
Once the internet’s infrastructure was built, we pushed into the ‘Applier’ phase. That’s when today’s tech titans actually applied the internet to various industries, creating entirely new business models that have since become internet empires.
For example, Amazon applied the internet to the commerce industry, creating an e-commerce empire.
Netflix applied the internet to the entertainment industry, and it now dominates in the streaming arena.
Meta applied the internet to the communication industry; Alphabet to the information services industry.
As a result, these firms have become the world’s largest companies… the stock market’s biggest success stories.
And they were all internet appliers.
Now, considering how similar the AI and Dot Com Boom have already proven to be, the AI Boom’s ‘Applier’ phase could also solidify the next generation of market champions.
And we believe we are just now entering this boom’s Applier phase.
AI Appliers Are Pulling Ahead
For the past two years, we’ve been in the AI Builder phase.
Companies have poured billions of dollars toward creating the infrastructure necessary to facilitate the AI Revolution. They’ve been building new data centers, constructing new chip fabs, developing next-gen AI chips, so on and so forth.
Indeed, this era has been dominated by those building out the groundwork necessary for AI to thrive on a global scale. And as a result, such AI Builder stocks have been on fire.
We view semiconductor stocks as a good proxy for AI Builders as they comprise the firms that build the chips, equipment, etc. that power AI technologies. And from early 2023 to summer 2024, semiconductor stocks led the AI Boom, soaring about 130% higher.
Meanwhile, Applier stocks – the software firms looking to develop and apply new AI models – rose just 70% over that same time frame.
But that has changed over the past few months.
Since mid-July 2024, AI Applier stocks have been crushing incumbent Builders. Software stocks are up 20%, while semiconductor stocks are down 20%.
We have “phase-shifted,” if you will.
And this is where we predict the biggest winners of the AI Boom will emerge.
The Final Word on the AI Boom’s Next Phase
Remember: As great as internet builders were, appliers were better.
Qualcomm, the quintessential internet Builder stock, has soared about 10,000% since 1995 – an excellent return.
But Apple, an internet Applier, is up about 67,000% in that time. Netflix is up about 84,000% since its IPO. Similarly, Amazon has surged an astounding 264,000% since it went public.
Clearly, the internet application boom produced huge returns.
The same could very well happen for AI Appliers, too.
But… to fully capitalize on this application boom… you need to be focused on the right AI Appliers.
To help us do that, let’s turn to Elon Musk – the world’s richest man – and his startup, xAI.
We’re confident that firm has the opportunity to become a major winner in this next phase of the AI Boom.
And while it’s not yet publicly traded, we’ve found a promising ‘backdoor’ way to invest in the company.
Learn more about xAI and its portfolio-boosting potential now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
