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