Cisco's 25-year peak fuels fears of a 2000-style tech bubble

The S&P 500 climbed 0.8% to a new record of 7,501.24, driven by a surge in technology shares after Cisco Systems Inc. posted blowout earnings, but the rally is sparking unease among veteran traders who see parallels to the dot-com bubble. The Dow Jones Industrial Average rose 0.7% to close above 50,000 for the first time, while the Nasdaq Composite also set a fresh record.

"What started with a handful of companies is now driving earnings growth across semiconductors, infrastructure, and even parts of the industrial economy," Gargi Pal Chaudhuri, chief investment and portfolio strategist at BlackRock, said. Cisco, a star of the original internet boom, leaped 13.4% for its best day in nearly 15 years after its profit and revenue crushed analyst estimates, with CEO Chuck Robbins citing "very strong, broad-based demand."

The rally pushed the Philadelphia Semiconductor Index (SOX) to a level 63.8% above its 200-day moving average, a deviation not seen since the bubble was beginning to burst in April 2000. The surge has been fueled by voracious demand for artificial intelligence infrastructure, with the 10-year Treasury yield holding steady at 4.47% and Brent crude oil at $105.72 a barrel.

For investors who lived through the last crash, the return of dot-com era leaders like Cisco, Intel, and Qualcomm to the top of the performance charts is a source of anxiety. "It's a horrifying coincidence," said Steve Sosnick, chief strategist at Interactive Brokers, who was an options market maker in 2000. Michael Burry, famed for "The Big Short," wrote on social media that the market "feels like the last few months of the 1999-2000 bubble."

Valuations Not Yet at Bubble Highs

Still, proponents of the current rally point to key differences. The most significant is valuation. The SOX index trades at 27.7 times forward earnings, according to FactSet data. At its peak in March 2000, that multiple was a staggering 52.1. Sosnick notes that the current gains are backed by real profit growth, with the recent earnings season being one of the strongest in years.

"It's truly incredible to see Cisco and Intel back on top," said Brent Donnelly, president of Spectra Markets. He also pointed to a more complex geopolitical landscape and suggested retail investors are now more disciplined, buying on dips rather than chasing highs.

The Challenge of Timing a Top

Even if the market is in a bubble, timing an exit is a perilous game. An investor who sold out in 1999 would have missed the Nasdaq's final, parabolic ascent. "This is very difficult to act on, because even if we are in the final wave of a bubble, we could still see quite substantial gains," Donnelly said.

The debate centers on whether the current AI spending boom, led by a few tech giants, is sustainable. Kimberly Caughey Forrest of Bokeh Capital Partners, who entered the industry in 1999, recalls the dot-com bust was triggered when the market realized spending on network hardware wouldn't grow to infinity. "When one of them flinches, will the rest stop investing?" she asks of today's AI leaders. "We shall see."

This article is for informational purposes only and does not constitute investment advice.