AI and the 1995 Explosion Repeat  

1995.

I just keep hearing about it now.

Not because it was when Michael Jordan was king of the NBA and Carlton couldn’t lose an AFL game.

1995 was the pivotal year when stock market investors realised the internet was more than a fancy fax machine.

A mass realisation dawned on the investment community that the internet was a communications revolution unparalleled in history.

This dynamic sent multiple sectors into huge uplifts.

For example, look what happened to semiconductors by the end of the decade…

Extraordinary.

The parallels between 1995 and 2024 are eerie

You see…

In 1994 the Federal Reserve unexpectedly lifted interest rates.

It sent stocks and bonds into a tizz and bankrupted several organisations, including Orange County in California.

Nobody expected 1995 to be a great year for the share market.

But it turned out to be one of the best of the 20th century. The late ’90s boom is still infamous for the heights it scaled…for those who missed out.

And it was all thanks to the internet.

Now consider today…

What a difference a year makes!

Do you remember March 2023? That’s when the US banking issues roiled the markets.

There were shades of 2008 as Silicon Valley Bank teetered and the Fed was forced to extend emergency credit to the sector.

You know what…

In hindsight, March 2023 was a buying opportunity just like 1994.

There’s nothing easy about markets.

Last year, the debate was whether 2023 would look like 1995 or 2001.

Stocks boomed in 1995. They sank in 2001.
Which way to go?

Here’s what I told my subscribers in March 2023…

‘Which case is more relevant? 1995 or 2001?

‘I lean toward 1995. One reason is that in the 2001–2 period, the US economy struggled to generate jobs. That’s not the case today.

‘There’s another reason I lean to think the next few years could look like the boom years of the late 90s.

‘Back then, the internet was the hot new thing that sent US productivity soaring.

‘It seems to me we could be up for the same thing as artificial intelligence finds more and more commercial application.’

The NASDAQ barnstormed its way up 40% last year.

US stocks are still around their record highs. Now Aussie shares are up at record highs too.

I’m pointing out the above because comparisons to 1995 still keep crossing my desk.

Even in today’s Australian Financial Review, one of the investment banks say…

‘AI is accelerating cloud demand and this remains at the epicentre of our AI Revolution ‘1995 Moment’ thesis.’

People always want to know what can send shares up.

Over time, there is ONE factor above all else.

It’s earnings. The more money businesses can make, the more valuable the shares.

Here’s a chart showing the US stock market and earnings growth over the last few decades.

You can see the correlation is very tight…

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Anything that can drive earnings higher is good for share prices! This is the “secret sauce” of share market returns.

The AFR quotes another investment bank today…

‘Bank of America said it lifted its 2024 S&P 500 earnings per share to $US250 (+12 per cent year-over-year) from $US235 previously (+6 per cent). “We also launch our 2025 EPS at $US275 (+10 per cent YoY).”

‘“We also see a virtuous cycle forming from AI investments,” BofA also said.’ 

Now back to that link to 1995. A colleague over in the USA says,

‘To spot future earnings acceleration, you need to look at

profit margins.

‘Do you know what happened in 1995 that tipped the Wall

Street Analyst community on its head?

‘The growth and integration of the internet sent productivity to new levels, sending S&P 500 profit margins soaring…

‘Now think about AI.

‘AI is all about automating repetitive and time-consuming

tasks, allowing organizations to optimize workloads.

Simply put, we’re about to enter another era of heightened

productivity. And that means accelerated profit growth.’

I couldn’t agree more!

This is what’s so exciting about this technology. It can lift profits wherever it finds commercial application.

And there’s no limit to how AI can benefit a range of industries and companies.       

Already we’re seeing this “AI” effect lift some related stocks on the ASX.

Here’s NextDC…

Here’s Macquarie Technology Group…

Of course, not all AI stocks have seen results like this. And stocks that sit in this end of the market are high risk and carry lots of volatility.

However, it was only the other week that CBA came out and said AI was making its software engineers 30% more efficient.

It also helps make loan applications get processed faster. CBA is trading around record highs.

Hello!

AI is creating an incredibly exciting
time for the markets

Nobody can know how high the rollout of AI can drive profits and markets (or if the trend becomes a busted flush).

But surely you don’t want to miss this opportunity?

I’ve been around the markets for a long time.

A technology that can lift multiple industries and the general return on capital are rare indeed. They are not to be ignored.

The question remains: WHICH companies can incorporate AI into their operations and lift their profit margins?

That’s why I’m so keen to share my latest report with you. It’s called Collide. Lock. Build. Explode.

We’re launching it tomorrow exclusively to Fat Tail Investment Research readers.

Go back to that 1995 idea.

What would you give now to have seen the potential of the internet and taken a stake in the companies building it out?

What would your net worth look like now?

We can’t know.

We do know, however, that you and I both are getting a second look at another massive technology revolution.

I want you to have a front row seat. The best bit? This tech doesn’t stop at the Californian border.

It’s going to wash over the ASX like a tidal wave…and potentially set to lift some stocks to epic heights. It’s already done it to some stocks in the USA. You know about Nvidia and the Magnificent Seven.  

You can get my Top 5 ASX plays as soon as tomorrow.

Best,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Callum Newman is a real student of the markets. He’s been studying, writing about, and investing for more than 15 years. Between 2014 and 2016, he was mentored by the preeminent economist and author Phillip J Anderson. In 2015, he created The Newman Show Podcast, tapping into his network of contacts, including investing legend Jim Rogers, plus best-selling authors Jim Rickards, George Friedman, and Richard Maybury. He also launched Money Morning Trader, the popular service profiling the hottest stocks on the ASX each trading day.

Today, he helms the ultra-fast-paced stock trading service Small-Cap Systems and small-cap advisory Australian Small-Cap Investigator.