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July 31, 2025 – The U.S. economy demonstrated a strong rebound in Q2 2025 with 3.0% GDP growth. Tech giants Microsoft and Meta significantly exceeded earnings expectations, fueled by the ongoing AI boom and robust cloud and digital advertising performance. While the current AI-driven market rally shows parallels to the dot-com era’s speculative growth, today’s tech giants exhibit stronger financial fundamentals than many during the earlier boom. Investors should balance the allure of high growth with valuation discipline and diversification to mitigate risks in this dynamic market.

//  by Tower Bridge Advisors

The Economy: A Strong Rebound
Good news on the economic front. The U.S. economy bounced back strongly in the second quarter of 2025. Our gross domestic product (GDP), which measures the total value of goods and services produced, initially grew by 3.0% from the previous quarter. This was better than expected and a welcome reversal from the slight contraction we saw in the first quarter.

What drove this growth? Interestingly, we imported less from other countries, and consumer spending increased. This helped offset some declines in business investments and our exports. When it comes to inflation, the core personal consumption expenditures (PCE) price index, a key measure that the Federal Reserve watches, rose by 2.5%. While slightly above forecasts, it was lower than the previous quarter’s reading, suggesting inflation might be cooling a bit.

Tech Giants Shine: Microsoft & Meta Lead the Way
The AI boom continues to be a major theme, and recent earnings reports from tech giants like Microsoft and Meta Platforms certainly underscore this.

Microsoft’s stock jumped after yesterday’s earnings release, as they comfortably beat financial expectations. A big driver was their Azure cloud business, which saw an impressive 39% year-over-year growth. This strong performance puts Microsoft on a path to potentially reach an incredible $4 trillion market capitalization—a testament to their scale and innovation.

Similarly, Meta Platforms’ shares surged after their financial report significantly exceeded second-quarter earnings expectations. Meta delivered strong performance in digital advertising, much like Alphabet. Meta reported earnings of $7.14 per share on $47.5 billion in revenue, both well above what Wall Street analysts predicted. Meta also highlighted their substantial investments in AI infrastructure, emphasizing their vision for “personal superintelligence.”

It’s clear the AI excitement is as strong as ever, leading us to ponder just how high company valuations can go. It feels like all the pieces are falling into place for continued growth. For smart investors, the challenge is balancing the natural fear of missing out (FOMO) with valuation discipline. Is this a bubble, or are we in the early stages of a rational market rally? Many of us remember past technology revolutions and the consequences of overly optimistic expectations.

A Look Back: Intel in the Dot-Com Era vs. Nvidia Today
To understand the current AI landscape, it’s helpful to look back at history. The journey of Intel during the late 1990s dot-com bubble and Nvidia’s recent surge in the AI revolution offer fascinating comparisons and important differences.

Intel’s Dot-Com Ride
During the internet boom, Intel, as the leading chipmaker for personal computers, was seen as a fundamental building block of the new digital age. Its stock price soared, driven by the widespread adoption of PCs and the internet. From early 1998 to late 2000, Intel’s stock climbed dramatically, reflecting investor belief that its chips were essential to the “new economy.” This period was marked by intense speculation, with Intel’s price-to-earnings (PE) ratio jumping from about 20 times to 60 times expected earnings. Many internet companies at the time didn’t even have sustainable business models, leading to widespread overvaluation in the tech sector.

When the dot-com bubble burst between 2000 and 2002, Intel’s stock plummeted, losing a large portion of its value, and its P/E ratio fell back to around 20 times. The bust happened due to several factors: too much supply, the realization that many internet companies weren’t profitable, and a general market correction. Although Intel was a strong company with real products and profits, it was caught in the broader market downturn and a slowdown in demand for PCs. Interestingly, even as its stock price fell, Intel’s earnings per share (EPS) continued to grow, showing a disconnect between market sentiment and the company’s actual business performance during the bust. This period was a stark reminder that even market leaders aren’t immune to speculative bubbles.

Nvidia’s AI Ascent
Fast forward to the 2020s, and Nvidia is in a similar, yet arguably stronger, position at the forefront of the AI boom. As the top designer of graphics processing units (GPUs), which are crucial for training and running AI models, Nvidia’s stock has seen a meteoric rise, especially since 2022. This surge is fueled by real demand for their high-performance chips, with their data center business becoming their main source of revenue.

Unlike many dot-com companies, Nvidia has strong financial fundamentals, consistent revenue and earnings growth, and a deeply established ecosystem of software tools (like CUDA) that make its GPUs indispensable for AI development. Reflecting this optimism and growth, Nvidia’s P/E ratio has increased from about 25 times to 40 times since 2023.

Key Differences & What to Watch For
While both Intel and Nvidia experienced immense stock growth driven by major technological shifts, the nature of these booms differs. Intel’s peak was part of a broader, more speculative bubble that included many unprofitable ventures, and its stock’s P/E ratio inflated significantly beyond its earnings growth. Its decline was severe as the market corrected irrational excitement, even though its earnings continued to grow.

Nvidia’s current rise, while rapid, is supported by strong financial performance. However, it could face challenges if the supply of AI computing power (driven by massive investments in data centers and chip manufacturing) eventually exceeds the growing demands from AI applications. The risk of oversupply, similar to the fiber optic overcapacity during the dot-com era, could lead to price reductions and a re-evaluation of valuations, even for a fundamentally strong company like Nvidia. Its ability to maintain its lead against new competitors and continue innovating will be crucial for sustaining its growth as the AI market matures, potentially preventing a sharp correction if demand can’t keep pace with the increasing supply.

Concluding Thoughts on Market Performance
Since the market lows this past April, stock market performance has been heavily influenced by companies with significant AI revenue sources. For instance, the S&P High Yield Dividend Aristocrats Index has seen a gain of +4.3% year to date, while the technology-focused S&P 500 Index is up +8.2% over the same period. This difference in performance can continue for a while, but history suggests it won’t last forever. Staying disciplined by focusing on valuations and fundamentally strong businesses within a diversified portfolio is a time-tested approach to managing risk during boom times like we’re experiencing today.

Businessman Mark Cuban turns 67 today, author J.K. Rowling turns 60 and actor Wesley Snipes is 63.

Christopher Gildea 610-260-2235

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « July 28, 2025 – The world looks pretty healthy but rising speculation elevates our concern. When the amount of corporate money flowing into bitcoin is twice the amount raised in initial public offerings to date, that gets our attention. With that said the focus this week will be on earnings and a slew of economic data on inflation, interest rates, and employment, all of which can be market moving.
Next Post: August 4, 2025 – Confusing economic reports on GDP and the labor market can be decoded to show that growth in the first half of 2025 was muted while inflation was well contained before the full impact of tariffs. If those data trends continue, look for one to three 25-basis point rate cuts before the end of 2025. That outlook may change with subsequent data but it is increasingly clear that an economy that has proven so resilient may need a bit more help to offset the impact of tariffs and significantly lower population growth. »

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  • October 2, 2025 – The stock market hit a record high yesterday—despite the government shutdown—which is a testament to the powerful influence of AI, creating a speculative frenzy that masks a cooling labor market and two-tiered, consumer-driven economy. This dichotomy poses a significant risk, making a disciplined and diversified investment strategy essential.
  • September 29, 2025 – AI is deemed by many to be the biggest economic game changer since the invention of the airplane. Maybe so, but PCs, the Internet and the iPhone didn’t move the productivity needle in any discernable way over the past 50 years. No doubt, AI will make us smarter, and some of us more economically productive. But before labeling the next decade as the golden age of productivity, we need to see some evidence of noticeable change. Universal adaptation of AI as a core business process is likely to be expensive and more time consuming than optimists suggest. In the meantime, our economy will continue to grow the old-fashioned way at the old-fashioned pace. That’s not so bad.
  • September 25, 2025 – Fed Chairman Powell noted this week that while equity prices are “fairly highly valued,” this is not a time of elevated financial stability risks. While the U.S. accounts for the majority of the largest companies in the world, our trading partners are also dealing with tariff impacts, inflation, economic growth and interest rate policy setting. The escalators at the United Nations may be glitching, but the U.S. economy, corporate earnings and equity markets around the world have continued to trend higher with a few bumps along the way.
  • September 22, 2025 – The Fed cut rates last week as it focuses more on the deteriorating state of our labor market. The unemployment rate remains modest but only because demand and supply are eroding in tandem, hardly a favorable state of affairs. While the concentration was on labor, more aggressive fiscal and monetary policy could increase inflationary pressures. Thus while President Trump’s new appointee opted for over a one percentage point drop in the Fed Funds rate by year end, the rest of the Board voted to move at a more measured pace. Wall Street applauded that decision.
  • September 18, 2025 – The Federal Reserve cut interest rates by a quarter-point, prioritizing the labor market over persistent inflation. This decision risks a prolonged period of higher inflation and may be fueling a stock market bubble, which is already at a record valuation.
  • September 15, 2025 – So far, investors have been happy with most of the disruptive changes of the Trump Presidency. But the fly in the ointment is the labor market which has shown little growth for several months. Job growth is the ultimate engine for economic growth. Machines and computers can replace workers but they can’t eat or spend money. History says that displaced workers will find alternative employment over time but until they do, growth may slow. Final sales growth within GDP suggests real growth today is well under 2%. That isn’t recessionary but the trend bears watching.
  • September 11, 2025 – The California gold rush began in 1848, when gold was found at Sutter’s Mill in Coloma, California. While many gold prospectors failed to find gold, suppliers of picks and shovels to gold miners garnered the majority of wealth creation. The current gold rush in the artificial intelligence space continues to benefit the picks and shovels equipment suppliers, although the AI “miners” may not all see a similar return on their massive investments.
  • September 8, 2025 – Friday’s employment report was a stinker, confirming an obvious slowdown in the labor market. The unemployment rate is the single most important indicator in America, a legacy of the Great Depression. The simple fact is our workforce drives growth. Without a growing work force the only tailwind is improved productivity. The Federal Reserve, always data dependent and therefore backward looking, is now set to start a series of cuts to the Fed Funds rate beginning next week. Hopefully, those cuts will abort any slowdown and get the economy back on course. Until evidence appears, stocks could experience higher volatility.
  • September 2, 2025 – Equilibrium means balance but doesn’t define the size of a market. A steady unemployment rate, stable housing prices and a steady 10-year bond yield all suggest equilibrium, but beneath the surface, there are warning signs that require investor attention.
  • August 28, 2025 – The July jobs report signaled a cooling labor market, with slowing growth and a slight rise in unemployment, yet consumer spending remains resilient despite retail price hikes caused by new tariffs. This mixed economic data creates a conundrum for the Federal Reserve as it balances its dual mandate amid political pressure and inflationary headwinds. Given this uncertainty and the S&P 500 trading near all-time highs, investors should brace for potential market volatility post Labor Day, as the Fed’s next policy moves will depend heavily on upcoming inflation and jobs data.

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