Despite increasingly negative signs in employment and real estate markets, major US stock indices continue their upward trajectory. Overall economic growth appears to remain robust. However, analysts warn that a crisis comparable to the internet bubble is quietly brewing.

The US economy and stock market are being driven by massive and unsustainable fiscal deficit spending, along with explosive growth in artificial intelligence expenditures. Figures including billionaire fund manager David Einhorn are beginning to worry whether massive AI investments will generate returns. A recent study also questioned whether artificial intelligence can truly improve productivity.

According to analyst Bret Jensen, the current economic/market situation increasingly resembles the 1999 scenario - the period before the internet bubble burst in early 2000. Jensen emphasizes that three key trends in the current market/economy are strikingly similar to conditions at the end of the 1999 internet boom.

**1. Valuations Have Become "Insanely" High**

High valuations are perhaps the most obvious similarity between these two periods. The S&P 500 Information Technology sector's forward price-to-sales ratio has reached 8.8 times. This is far above levels at the end of the internet boom and represents the highest level in history.

The Shiller P/E ratio is approaching 40, which has only occurred twice in history and is currently slightly below levels reached in 1999. The "Shiller P/E ratio," also known as the Cyclically Adjusted Price Earnings (CAPE) ratio, calculates the P/E ratio using 10-year average earnings adjusted for inflation, smoothing the impact of economic cycles on valuations. Historical data shows that when US stocks' CAPE exceeds 25 times, they enter a period of "irrational exuberance."

Additionally, the stock market capitalization-to-GDP ratio has reached historic highs. This ratio, also known as the "Buffett Indicator," measures the overall market's overbought condition and has reached record highs.

**2. "Vendor Financing" Returns**

Veteran investors may remember the rapid growth of "vendor financing." In this model, suppliers like Cisco would provide financing services on favorable terms to customers purchasing their equipment while making sales.

NVIDIA announced last week that it would invest up to $100 billion in OpenAI, helping the ChatGPT parent company build large-scale data centers equipped with NVIDIA chips. Wall Street analysts have mixed views on this deal. Bulls see it as further evidence of the booming AI infrastructure business, while bears view it as NVIDIA simply helping a cash-strapped customer. Some observers also suggest this "investment" appears to be vendor financing in disguise.

**3. Market Divergence**

At the end of 1999, Microsoft was the most valuable stock in the entire market, with a market capitalization of approximately $600 billion. This was remarkable, but this figure represented only about one-third of France's annual GDP at the time.

Just as now, the end of the internet boom saw clear market polarization, with the top ten stocks by market cap accounting for approximately 40% of total market value. Microsoft was the only company that ranked in the top ten 25 years ago.

However, NVIDIA's current market capitalization is slightly above $4.3 trillion, far exceeding the annual GDP of the UK ($3.6 trillion) and France (slightly below $3.2 trillion). Microsoft and Apple also have market capitalizations approaching $4.3 trillion. Alphabet has a market capitalization of $3 trillion.

**So Will This Time Be Different?**

Jensen indicates that factors including FOMO (fear of missing out), momentum, algorithmic trading programs, and passive index investing can work together to keep stock markets elevated for extended periods after departing from reasonable valuations. However, over time, high valuations are difficult to sustain. For investors, this time will not be different.