Charting the Future: The Next Phase of the AI Boom Awaits

The stock market has seen significant victories thanks to advancements in artificial intelligence, particularly with companies such as Nvidia (NVDA).

What if the most remarkable gains in the AI sector are still on the horizon?

Looking ahead to 2025, a transformative shift is anticipated, driven by a new wave of AI-focused companies.

Let’s dive deeper.

Many are drawing parallels between today’s AI boom and the dot-com boom of the late 1990s. This analogy is compelling; similar to how the internet revolutionized society, AI is reshaping our interactions, work, and everyday living.

These changes are not just incremental; they are foundational.

If projections hold true, by 2025, the stock market may be significantly influenced by AI innovation, potentially outperforming even the remarkable gains we’ve observed with AI stocks like NVDA recently. Those investors who strategically align their portfolios with this emerging sector stand to gain substantial benefits in this evolving phase of the AI journey.

Historical Echoes in the AI Boom

AI is a groundbreaking technology of the 2020s, similar in its disruptive potential to the internet from the 1990s. The AI boom is transforming how people work, communicate, and socialize.

Both AI and the internet share strong similarities as major technological revolutions.

There are also compelling parallels between the AI boom and the dot-com boom observed on Wall Street.

The S&P 500 experienced a remarkable increase of over 20% in 2023, the first year marked by AI innovations. This trend continued into 2024, with another 20% rise. Such consecutive annual growth exceeding 20% hasn’t occurred since the early years of the dot-com boom in 1995 and 1996.

A glance at the S&P’s performance in these two periods reveals striking similarities.

Current stocks in the AI boom appear to be mirroring the trajectory of their counterparts from the dot-com era.

Hence, it’s reasonable to suggest that we are witnessing a revival of the dot-com boom through the lens of AI.

The dot-com boom unfolded in two distinct phases: the Builder Phase and the Applier Phase.

Initially, in the 1990s, telecom and internet infrastructure companies emerged to build the necessary frameworks for the burgeoning internet. This marked the Builder Phase, with efforts focused on creating the critical infrastructure that spurred the internet revolution. The 1990s’ prominent Internet Builders led the way.

For example, Qualcomm (QCOM) surged nearly 6,000% from 1995 to 1999, while Applied Materials (AMAT) gained about 1,000%. Additionally, Semtech (SMTC) skyrocketed nearly 7,000% and Verisign (VRSN) saw an increase of around 3,000% during this period.

These Internet Builders dominated the initial phase of the dot-com boom, but they differ from the companies we commonly associate with that era today.

Entering the Next Phase of the AI Revolution

Which companies stand out when we consider the main successes of the internet revolution? Think of Amazon (AMZN), Netflix (NFLX), Meta (META), Alphabet (GOOGL), and Microsoft (MSFT).

These firms are among the top beneficiaries of the internet era, but notably, they were never classified as internet builders.

Instead, they are recognized as internet appliers.

As previously discussed, the dot-com boom progressed through two phases: the Builder Phase, where businesses like Qualcomm and Applied Materials constructed essential infrastructure, followed by the Applier Phase, where established companies like Amazon and Netflix leveraged that infrastructure to redefine industries and create groundbreaking business models.

For instance, Amazon revolutionized retail with e-commerce, while Netflix transformed entertainment consumption through streaming. Each of these companies innovatively utilized the internet to establish vast business empires, emerging as the largest firms in the world and achieving significant stock market success.

These are not internet builders; they are internet appliers.

We are currently on the edge of entering the Applier phase of the AI Boom.

For the last two years, we have been in the AI Builder phase, with companies investing billions to create the necessary infrastructure for the AI Revolution. Significant investments have been made in new data centers, chip production facilities, and advanced chip development. The past two years have focused heavily on establishing the groundwork for the AI realm.

The result? AI Builder stocks have performed exceptionally well during this initial stage.

Semiconductor stocks serve as a proxy for AI Builders, incorporating firms that produce the essential chips and related technologies for AI infrastructure. From early 2023 through mid-2024, semiconductor stocks surged approximately 130%. In comparison, AI Applier stocks—software companies focused on applying AI—experienced a 70% increase in value during the same timeframe.