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Dot-com bubble 2.0? Mega-cap tech stocks outperform small caps at rates not seen in two decades

Dot-com bubble 2.0? Mega-cap tech stocks outperform small caps at rates not seen in two decades

Though the record highs major stock market indices have been trading at since the start of 2024, especially paired with the growth of the artificial intelligence (AI) sector – spearheaded by the semiconductor giant Nvidia (NASDAQ: NVDA) – have been generating a lot of enthusiasm, the trends may not be entirely good.

Earlier this year, in February, Finbold reported that the overlooked feature of the current big tech bull market is the incredible level of concentration when it comes to stock market returns – a concentration worryingly akin to the trends observed just before the Great Depression began.

More recently, it has emerged that the mega-cap technology stocks – again best exemplified by the blue-chip firms such as Nvidia and Microsoft (NASDAQ: MSFT) – are outperforming their smaller counterparts with margins not seen in two and a half decades. 

Mega-cap tech stocks outperforming small caps at Dot-com bubble rates. Source: Barchart

Such a trend is particularly worrying since the last time the discrepancy was this large was during the height of the Dot-com bubble, as pointed out by Barchart, the platform that initially shared the data on X.

Additionally, this is not the first time that parallels between the current state of technology stocks have been compared to the Dot-com era. 

Not the first time the tech boom has been likened to a bubble

In early April, Albert Edwards, a global strategist at the banking giant Société Générale (EPA: GLE), opined that the AI boom has already generated a dangerous bubble. 

The warning is particularly dire since the analyst is notable for correctly predicting the start of the Dot-com crash two and a half decades ago.

Edwards also stated that one of the reasons for the creation of the bubble is that the Federal Reserve is not being restrictive enough, despite the interest rates being at multi-decade highs.

Systemic risks pile up in the United States

Indeed, various systemic risks appear to be piling up within the U.S. economy. While the technology boom is equally frightening and exciting, two aspects that are decidedly only worrying are the shifting inflation rates and ballooning national debt.

The latter has apparently become large enough – having reached $34 trillion in total and approximately $101,000 per capita by the end of 2023 – that the International Monetary Fund (IMF) recently issued an uncharacteristically stern rebuke to the United States warning that ‘something will have to give.’

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