We’re Back to 1997/98?

Everyone is wondering if we’re in another tech bubble.

Tech companies are breaking valuation records, with Nvidia Corp. leading the charge. On Wednesday, it became the first company ever to reach a $5 trillion market cap.

It’s been a week of dealmaking for the tech behemoth. Uber announced that Nvidia will power a 100,000-unit fleet of autonomous cars beginning in 2027. Joby Aviation, the eVTOL (flying car) company I wrote about in June, secured an exclusive deal to use NVIDIA’s physical AI technology to improve autonomous flight capabilities. And Nokia received a $1 billion equity investment from NVIDIA, securing its place in the coming telecommunications 6G build out.

There’s a mad rush to invest in AI, and NVIDIA is just one of the main actors. Microsoft, Oracle, X, Intel, and Advanced Micro Devices, and Open AI are all at the center of an increasingly interconnected web of AI-related transactions.

I call these “circular deals,” where a big tech company takes equity in or provides credit to a customer in lieu of cash for its equipment or services. Such deals require convoluted financial engineering that are difficult to analyze, often hiding risk. 

Peter Atwater sees it. He compares this new web to the overlapping mortgage securitization deals that lead to the great financial crisis.

I believe it’s more akin to what we saw in the late 1990s, when Cisco Systems formed Cisco Capital to finance customer purchases of its own equipment. Many of Cisco’s customers were start-ups or early-stage businesses, and they didn’t have the balance sheet to buy Cisco’s essential equipment. So, Cisco would book the sale while also financing the transaction.

The question we’ve been hearing all week is, “Are we in an AI bubble?” 

Maybe. Warning signs are appearing. However, bubbles can get bigger. So, a better question might be, “How close are we to the peak?”

That’s what I’m discussing this week with my good friend Jared Dillian. He maintains that the cycle we’re in is no different from past cycles. “It’s never different.”  But what’s happening today feels more like 1997/98 than early 2000.

We also cover what the eventual correction will look like. Will it be equal in magnitude and duration to the current bull market—which, save for the pandemic, has been running for nearly 17 years?

Click the image above to watch my interview with Jared Dillian.

Please take a few minutes to check out our rapid-fire discussion by clicking here. Then leave me a note in the comments with your feedback. Do you think we’re back in 1997/98?  And why?

A transcript of my conversation with Jared is available here.

Thanks for reading and watching.

Ed D’Agostino

Partner & COO