📈 S&P 500: Lessons from the IT Bubble vs. the AI Boom

 

The S&P 500 has been through several waves of optimism and correction, but two periods stand out for their tech-driven narratives:

• the IT (dot-com) bubble of 1995–2002

• the ongoing AI boom of 2022–2025

Both episodes show how technological revolutions can fuel investor euphoria, drive valuations to new highs, and concentrate market returns in a handful of companies. Yet the outcomes so far look very different.

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The IT Bubble (1995–2002): A Classic Boom and Bust

• The Rise: From 1995 to March 2000, the S&P 500 surged more than 220%, climbing from ~460 to over 1,520. Technology stocks, especially internet and networking firms, led the charge.

• The Fall: By late 2002, the index had fallen nearly –50% from its peak, bottoming around 800. It took several years to fully recover. Many dot-com companies never returned—hundreds went bankrupt when revenue failed to materialize.

• Takeaway: The IT bubble was broad, euphoric, and devastating. The S&P 500 mirrored the collapse of investor sentiment in technology, suffering a long and painful recovery.

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The AI Boom (2022–2025): Narrow but Powerful

• The Rise: Since 2022, AI enthusiasm—sparked by breakthroughs like generative AI and fueled by chip demand—has lifted the S&P 500 to record highs. From ~3,800 in late 2022, it climbed to ~5,400 in mid-2024, a gain of ~40%.

• The Correction: A mild pullback followed in early 2025, with the index dipping to ~4,900 (–10%). But by mid-2025, it had already rebounded to ~5,200, showing resilience compared to the dot-com bust.

• Key Feature: This rally has been narrowly concentrated. The so-called “Magnificent 7” account for over 40% of the S&P 500’s weight, overshadowing the broader market—similar to how Cisco, Microsoft, and Intel dominated in 2000.

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Visual Comparison

This chart shows the S&P 500 during the IT bubble (blue) and the AI boom (red), indexed to 100 at the start of each cycle. The contrast is clear:

• The IT bubble saw a steep rise and a brutal collapse.

• The AI boom has seen a smaller, steadier rise, followed by only mild corrections so far.

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Side-by-Side Snapshot

Metric	IT Bubble (1995–2002)	AI Boom (2022–2025)
Rise	+220% over 5 years	+40% over ~2 years
Peak	~1,520 (Mar 2000)	~5,400 (Jul 2024)
Decline	–50% by 2002	–10% correction so far
Recovery Time	Several years	Ongoing, quick rebounds
Market Breadth	Broad, IPO mania	Narrow, Magnificent 7 driven

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Key Lessons

1. History Rhymes, Not Repeats – Both periods show how transformative technologies spark outsized optimism. But while the dot-com bubble was built on unprofitable startups, today’s AI boom is centered on profitable, established giants.

2. Concentration Risk Matters – When a few companies dominate returns, the whole index is exposed. If AI leaders stumble, the S&P 500 could see sharper corrections.

3. Innovation is Real, Valuations Still Matter – The internet did change the world, even though investors suffered losses first. AI will likely follow a similar trajectory: transformative, but not without volatility.

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Final Thought

The IT bubble was a boom-to-bust saga. The AI boom, so far, has been shallower and more resilient. The question is whether today’s market will sustain its gains—or if we’re watching history repeat with a different technology narrative.

👉 What’s your view? Are we in a sustainable AI-driven bull market, or heading toward another bubble burst?

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