Many investors remember the technology bubble of the late 1990s. Stock prices soared, excitement was everywhere, and investors rushed into anything connected to the internet. Unfortunately, much of that growth was based on optimism rather than real profits.
Today, investors are asking an important question:
Is the current rise in artificial intelligence and innovation stocks another bubble?
While no one can predict markets perfectly, today’s environment looks very different from 1999 in one key area:
Earnings Growth Is Real
During the 1999 technology bubble:
- The technology-heavy market index rose nearly 250% between 1995 and early 2000
- Valuations exploded to extreme levels
- Many companies had little or no earnings
- By 2000, price growth had dramatically outpaced profit growth
At the peak of the bubble, the technology sector traded at extremely elevated valuation levels, with many companies valued primarily on future hopes rather than current business results.
When investor enthusiasm faded, markets corrected sharply.
2026: Prices Are Rising — But Earnings Are Rising Faster
Today’s market environment is fundamentally different.
In the leading artificial intelligence and innovation-related sectors:
- Earnings growth has accelerated significantly
- Revenues and cash flow are expanding rapidly
- Many companies are generating record profits
- Balance sheets are generally far stronger than during the late 1990s
Most importantly, earnings growth is now supporting much of the market’s advance.
In several major growth-oriented indexes:
- Earnings growth over the past two years has exceeded stock price appreciation
- Price-to-earnings (P/E) ratios for many technology-focused indexes have actually declined from their recent highs
- Valuations today are well below the extreme levels reached during the 1999–2000 bubble
In simple terms:
Prices have risen because profits have risen.
That is a major difference.
A Simple Way to Think About It
Bubble:
Prices rise much faster than earnings.
Boom:
Earnings and prices rise together.
The late 1990s were driven largely by speculation and excitement.
Today’s market leadership is being supported by real earnings growth, real cash flow, and real business demand tied to artificial intelligence, productivity improvements, and innovation.
What This Means for Investors
Strong markets can still experience volatility and temporary pullbacks. That is normal.
But history shows that markets supported by real earnings growth tend to be healthier and more durable than markets driven purely by hype.
The key for investors is not avoiding growth altogether — it is staying diversified and focusing on whether business fundamentals continue to support valuations over time.
As always, successful investing is about balancing opportunity with discipline and maintaining a long-term perspective.
All investing involves risk, including the possible loss of principle. There is no assurance that any investment strategy will be successful.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not consider the effects of inflation and the fees and expenses associated with investing.
The views stated in this newsletter are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to the volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. All investing in involves risks, including the possible loss of principle. There is no assurance that any investment strategy will be successful.
Michael Frost is a registered representative offering securities through Cetera Advisors LLC.
Member FINRA/SIPC. Cetera is under separate ownership from any other named entity.
5475 Tech Center Dr., Suite 200, Colorado Springs, CO 80919
"The views stated in this letter are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results."