@Goofyhoofy posted an excellent recap of the AI bubble which resembles the 1999-2000 dot-com bubble. He finished by asking, “How would you play this?”
Let me ask all METARs:
If you knew then what you know now, how would you have invested in 2000 - 2002?
Wendy
That was a problem almost entirely within the tech sector. So I would have avoided any tech name, any dot-com name. Stayed in old-school blue chips.
Good question.
Probably not much different, if at all.
I went back and looked at where the NASDAQ ((IXIC) - since it suffered worse)) from 1/1/1999 through 12/31/2022.
IXIC was about 2300 to start. It peaked at about 5000 on 3/6/2000 - a gain of over 100%.
It did not fully give up all that gain until nearly a year later in February 2001 - even though it gave up most of that gain in just two months (March to May 2000). Even if one were to have gotten out in May after losing over half their gains, they would have still enjoyed a gain of roughly 40% in 17 months.
The problem of course is we don’t know if where we are now is circa 1/1/1999, or closer to 1/1/2000. Those of us that are sitting on gains circa 1997 when the NASDAQ was ~ 1000 have less reason to be concerned with that exact comparison. Anyone else getting in today - not so much.
If you’re just indexing IOW not looking for whatever kind of companies wouldn’t be affected or looking for the “anti-stock” assets to go to, I’d just sit in a MMF until the turn-around. I’m not chasing every possible penny. Just avoid getting smashed.
Then you’d have a swell buy-in point
…good posts all thank you.
One more wrench in the gears to keep in awareness: USA economic dominance was already wearing thin when our political system started (ahem) experiencing trouble that immediately put poisons into our economic system, especially our usefully extremely decentralized system of capital generation and allocation.
If I were starting out in the world today instead of finishing up I would no longer put a 99% bet on the USA. But I would still place my main bets on it, mostly because I see rising signs of a strong backlash at the polls, in the courts, and even in the craven “businessman” idiots fixated on short term gains by whatever means. This could spark a large scale movement for reform with new leaders rising, and reforms are about 50 years overdue and new leadership, well, it would be great to see the average age in Congress drop about 30.
Back then I invested in technology. Now I invest in business. Biggest lesson, buy only stock of companies that will bounce back.
Today don’t invest in AI. Invest in companies that can monetize AI.
The Captain
I think the premise of the OP (or the analysis that Goofy linked to, anyway) is that there aren’t likely to be many companies that can monetize AI. If any.
If we’re in a replay of the 2000-2002 market, that would mean that there’s likely to be such a shakeout in the near term that those companies will be on offer for a lot cheaper for the next several years than today. So that even if there are companies that can eventually monetize AI, they’ll get sucked down with the rest of the sector in the “AI Crash,” if such comes to pass.
Well, Grok AI did just ink a deal for $0.42 per government agency - so there is that. 
I pulled all the burnt ends out of the oven and parked them in money market funds. Then, when I wasn’t even confident they would hold up, I went to BRK-B, a life raft of sorts.
Are we or are we not?
2000-2002
That’s a lot of potential failure points.
Can you list the 2025 potential technology failure points beside high market prices which seems to be what is scaring people?
The Captain
Sure. To use your listing style, we have:
AI companies
Chip makers
Cloud storage
Energy plants
LLM/AI design wars
Self-driving car wars
Robot wars
earnings don’t matter as long as there is cash, venture or otherwise
…but it all comes down to the same general premise, and the last point. We are seeing gazillions of dollars being invested to build out a particular infrastructure (then, the internet and e-commerce; now, AI and related products). As in 2000, we’re seeing that money poured into the entire infrastructure chain - chips, cloud storage, energy production, the software itself. But we don’t yet see that infrastructure providing economic returns commensurate with the gazillions of dollars. AI is useful, but it’s not that useful to the end users to justify spending all that much for it. People (collectively) will spend a small amount for the AI products we see today, but nowhere near the trillions of dollars that would be needed to justify how much firms are spending in order to produce those AI products.
Hence, the supposition - is the AI boom going to end up like the dotcom boom? A tech that will change the world someday, and might earn a lot of money someday - but not in the short term, and not by enough to justify the money being spent on all the many ventures involved in building it?
I was fortunate enough to say I would play it exactly the same, but it was mostly luck at that time. I was heavily into tech in the 90’s, I’ve told the origin story before (it began with AOL, then included Cisco, a bunch of telecom, @Home, and some others long forgotten. Never got as far as the Pets.com stuff, tho.)
Anyway, Mrs. Goofy and I decided to leave our jobs, buy an RV and travel the country - which we did for almost 6 months, coast to coast, top to bottom. The technology at the time was nowhere what it is today: I had a Motorola Razr. To “log in” and get emails I had a battery powered modem that I had to use on a pay phone (or similar) by holding it up to the earpiece. Realizing that I might be out of touch for days/weeks at a time and being nervous about the market being “toppy” (a word I used in several Fool posts) I sold everything, paid the ridiculous taxes, and went out.
When we returned home I discovered the joys of stalwarts (WalMart, J&J, etc) and later divided payers, ad even later the Arstocrats - and have been somewhere in that field ever since, with an occasional small side trip into something like Facebook IPO or whatever.
We are slightly more than 50% cash, laddered CDs, bonds, and money markets. We’ll stay there until there’s some kind of surety, which will happen, um, I have no idea when.
Most experts disagree with the above assessment.
Revising and extending remarks —
One other way to play it, if you feel really confident that the market will fall and fall considerably, and you wish to just stay with indexing is to take some money and put it in one of those funds that short the market. Don’t know if Rydex and Profunds are still around but I’m sure there is an equivalent ETF or something. Make some money on the losing.
It’s going to much worse than 2000 2002 and worse than 2008.
The debt and tax policy are being mismanaged properly. There is no room to mismanage tax policies.
Link please
We want to see who those experts are.
CEOs of all major tech companies.
Sam, Elon, Sundar, Satya, Andy, Zuck are all betting $100B’s.
Use cases of AI are exploding.
It’s so weird, because in the late 90’sthe CEO’s of all the major telecoms were putting billions toward building fiber networks, and Cisco was selling all the routers it could, and other tech giants were “all in” because they had no choice: everybody said it was going to be huge.
And then it wasn’t.
Oh, eventually the glassine ropes got used (thanks Netflix) but none of the CEOs who had put so much into them were around, in fact many of the companies they headed weren’t around either.
They all thought they had to dance faster than the other guy, with sky high projections of revenue and a world to be. And they were wrong, at least for many years, and they were swept away into the dustbin of history. Eventually it worked out for us, the consumers, but maybe not so much for us, the investors.
Which of these use cases are profitable?
There are always naysayers and negative nancies.
Meanwhile Apple, Amazon, Nvidia, Tesla and Google become $Trillion companies and made many many people multimillionaires.
There will always be some people predicting gloom and doom remembering GFC, Y2K and pandemics and losing out on decades of compounding due to fear.