I watched the BlackBerry movie over the weekend. If you haven't seen it, I highly recommend it - a fascinating film that explores the incredible growth and collapse of the world's first smartphone. It really got me thinking about technology, and how far we've come in such a short period of time.
Here's a great summary of how the Nasdaq has performed in the years following major technological releases. I was surprised the Blackberry release wasn't captured in this chart. For the record, the BlackBerry was released on January 19, 1999.
Source: Bespoke
And here's how the Nasdaq performed in the first three years following the release of the major technology products.
Source: Bespoke
Today, it's all about AI. In fact, I think it was AI, specifically ChatGPT, that single handedly saved the market in 2022. After a ~35% decline in the Nasdaq in less than 12 months, ChatGPT was released on November 30, 2022, with the market subsequently rising about 52% in about 15 months.
Interestingly, the rally in the Nasdaq since ChatGPT looks similar to that of post Netspace and AOL. After 309 trading days following the release of ChatGPT, the Nasdaq was up 46.07%. At the same time, Netspace was up 45.9%.
Source: Bespoke
During the mid-90s, many doubted that AOL would ever turn a profit, many doubted that its technology would ever work well, many doubted AOL's accounting. And many more doubted that AOL's stock could keep rising - but it did.
The question that everyone seems to be asking today, is whether the run we've seen in technology stocks is like the one we saw during the Dot Com bubble. I think the real question to ponder is whether the run we’ve seen is more like the early to mid-90s when the Internet boom was just getting started or the late 1990s towards the very end of the Dot Com bubble’s run.
I don't know whether Nvidia will follow the same fate of Cisco. Although, Cisco's share price has been slowly but surely climbing ever since. Maybe Nvidia pushes hard and switches from a focus on hardware to software. We saw something similar with Apple not that long ago. I don't know whether the Mag-7 will all leave the top spot in 3 years' time, 5 years' time, or ever. These companies are ginormous. There are companies within companies. YouTube, a Google company, is estimated to be worth US$180 billion. That's more than IBM, Uber, American Express, Nike, Goldman Sachs, BlackRock, and the list goes on. This is just one company within one company. We've just never seen this before. I don't know whether Apple's share price will collapse - it's up about 150,000% since listing. These companies are innovating every day. Will someone release a product that is the iPhone killer? Maybe. I just don't know who and when.
Those that jibber-jabber about why Nvidia is a bubble, or why the Mag-7 are a bubble, fail to provide us with any more information than we already know.
Let's imagine that it's 1997, and I told you that global mobile subscriptions would go from 1 per 100, to nearly 110 per 100, with around 8 billion contracts globally in 2024. What would you have done? Probably go out and buy telecom stock, right? Right. Makes sense. But with the benefit of hindsight, you would have been dead wrong. Here, you can see global mobile subscriptions absolutely skyrocketing, yet S&P 500 Telecomminucations and Stoxx Europe 600 Telecommunications crash from their nosebleed levels and have not recovered since.
Man investing is hard.
The other factor we need to understand, which is basic stock market fundamentals, is that earnings drive growth. During the 1990s, many companies were loaded with debt to finance their expensive rollouts before they could make a dollar. Today, the Mag-7 have extraordinary balance sheets, cash flow, and are making money hand over fist.
You see, we never know what's around the corner, whether we're at the beginning or the end of the cycle, or how much further this run has to go. And I don't know whether the Mag-7 will continue to be the conduits of and capture the value, or will AI completely democratise tech value for the economy.
We cannot constantly invest in fear, or not invest at all. This is the risk we need to take. If you had bet against the Mag-7 for the last 4 years, you would have foregone about +136% return. I'm not saying to invest all your money here. You probably can't handle the ride anyway. I mean, 75% decline during the Dot Com bubble, 50% decline during the GFC, 30% decline during COVID, 35% decline during 2022, and everything in between. We need to remain well diversified across different asset classes, sectors, and geographies. It just helps smooth the ride out. There are also many strategies to deal with such situations, which I won't go into in here.
And if you don't like the Mag-7, there are plenty of other places to invest. The problem with that is they just don't make any money. Investing is not binary. I think its science mixed with a bit of art.