Author: Monday, Deep Tide TechFlow

Deep Tide Introduction: BlackRock's latest report makes a direct comparison between the current AI bull market and the internet bubble of the 1990s: from 1993 to 1999, U.S. tech stocks rose by 1,097%, while from 2019 to now, the AI market has increased by 569%. The gain is only slightly more than half of that in the past, but the Shiller price-earnings ratio of the S&P 500 has returned to 40 times (equal to the peak during the 2000 bubble), and tech stocks now account for over 37.5% of the total market value of U.S. stocks, exceeding the internet bubble period.

BlackRock's conclusion is: AI is not a bubble, but this hinges on whether profit growth can be realized.

In the latest weekly commentary released on July 7, BlackRock addressed the hottest question in the market: Is AI a bubble?

The answer given by the world's largest asset management company is: the key is not where valuations stand relative to history but whether profit growth can be sustained. Meanwhile, analyst Mike Zaccardi shared a comparative chart from an internal BlackRock presentation on platform X, visually comparing the internet bubble from 1993 to 1999 with the AI market from 2019 to now. The data source is Morningstar, as of June 30, 2026.

The conclusion is straightforward: the AI market has increased by 569%, barely more than half of the internet bubble's 1,097%. However, more important than the percentage rise is whether the fundamentals supporting this market are stronger than they were back then.

Tech stocks rose 569% over 7.5 years; the internet bubble rose 1,097% in the same period

According to BlackRock citing Morningstar data, during the 7 years from 1993 to 1999, U.S. tech stocks cumulatively rose by 1,097%, while the overall U.S. stock market rose by 292%. Tech stocks had an annualized return rate of no less than 19.9% for 7 consecutive years, with peak returns of 78.1% and 78.7% in 1998 and 1999, respectively.

In the AI market cycle from 2019 to June 30, 2026, tech stocks posted cumulative returns of 569%, while the overall U.S. stock market returned 237%. This period experienced a significant retracement in 2022 (where tech stocks fell by 28.2% for the year), but rebounded by 57.8% in 2023, with increases of 36.6% and 24.0% in 2024 and 2025, respectively, and an additional rise of 19.8% in the first half of 2026.

The divergence between the two cycles is evident in the latter half. The final two years of the internet bubble saw accelerated peaks, with cumulative increases nearing 200% in 1998 and 1999; the acceleration phase in the AI market occurred in 2023 (rebounding from the 2022 low), but subsequent annualized growth rates have gradually narrowed. In other words, the rhythm of the AI market is more restrained than that of the internet bubble, but the market is increasingly divided on how far it is from the "peak" phase.

Shiller P/E ratio returns to 40 times, but forward P/E ratio is only 21 times

The Shiller price-earnings ratio (Shiller CAPE) of the S&P 500 has climbed to 40 times, returning to levels seen during the internet bubble. This is a classic indicator used to assess whether long-term valuations are overheated and is calculated based on the average inflation-adjusted earnings over the past 10 years. A ratio of 40 means investors are paying $40 for every dollar of long-term average profit, a level historically only reached around 2000.

However, BlackRock points out that the 12-month forward P/E ratio provides a more balanced perspective. Currently around 21 times, valuations do not appear as exaggerated, primarily because profit expectations have risen in line with stock prices.

S&P 500 second-quarter earnings are expected to grow by 23% year-over-year, marking the seventh consecutive quarter of double-digit growth. BlackRock emphasizes that such profit growth rates are extremely rare in history. BlackRock's Chief Investment Officer Rick Rieder revealed at the June 2 CNBC CEO Summit that the current P/E ratio for the "Magnificent 7" tech giants is 26 times, with expected profit growth exceeding 30% (a composite growth of about 27.6%), while the S&P 500 forward P/E ratio is 21 times, with a one-year profit growth forecast slightly above 20%.

The split in these two indicators constitutes the core contradiction of the current market: long-term valuation indicators have signaled bubble conditions, but short-term profit momentum still supports high valuations.

Technology stocks account for 37.5% of market value, exceeding levels during the internet bubble

According to Morningstar data, as of May 31, 2026, tech stocks accounted for 37.5% of the U.S. stock market's total value, surpassing levels at the end of the 1990s internet bubble. This figure does not include Alphabet and Meta categorized under communication services, nor Amazon classified under consumer discretionary. When including these giants deeply involved in AI, the actual concentration is even higher.

Market leadership is shifting from the "Magnificent 7" to a broader group of AI beneficiaries. A new market shorthand "MANGOS" has emerged, representing Meta, Anthropic, Nvidia, Google, OpenAI, and SpaceX. The Morningstar Global Next Generation AI Index cumulatively rose about 45% in April and May 2026, followed by a decline in June.

Concentration risk is one of the current market characteristics most similar to the internet bubble. By the end of 1999, a handful of companies like Cisco, Intel, Microsoft, and Oracle led the final sprint of the Nasdaq. While the current AI leadership is far more profitable than back then, once profit growth fails to meet expectations, the effects of concentrated holdings may be equally difficult to avoid.

BlackRock's core argument: Judging whether there is a "bubble" is itself a significant bet

In the weekly commentary, BlackRock offered a thought-provoking statement: concluding that AI has become a bubble is itself a significant judgment because it assumes that AI technology will not bring lasting productivity and growth breakthroughs.

BlackRock believes that AI provides the possibility for achieving "permanent growth breakthroughs" through accelerated innovation, but the investments needed to build the future are reinforcing scarcity. On this basis, BlackRock's mid-2026 outlook focuses on three themes: AI scarcity (electricity, grid, chip, and data center bottlenecks), durable income (short-duration credit assets), and thematic investments that transcend traditional asset classifications.

BlackRock maintains an overweight position in U.S. stocks, preferring the scarce inputs required for AI systems.

However, opposing voices are equally clear. Morningstar noted in the latest market briefing that the concentration of tech stocks in the U.S. market has exceeded internet bubble levels, with concerns about high interest rates, high valuations, and overinvestment in AI intertwining. Fidelity's research has pointed out that the current ratio of capital expenditures to free cash flow is below 1, meaning enterprises are mainly using their own funds rather than borrowed funds to invest in AI. This sharply contrasts with the nearly 4 times ratio during the internet bubble.

For investors, the core issue has shifted from "how much can the AI market rise" to "how long can AI profit growth be sustained." BlackRock bets on profit realization, while bears bet on profit peaking. The earnings report season in the second half of 2026 will be a critical window to test both judgments.