The Nasdaq Just Did Something For Just the 5th Time Ever. History Says This Could Happen Next.
The tech-heavy index has been unusually volatile lately.
Over the past month, AI stocks experienced significant fluctuations, initially falling due to concerns over a tightening credit environment before dropping 6.5% on Nov. 5 due to fears of a crackdown on data centers. However, the Invesco QQQ Trust (QQQ), a tech-heavy Nasdaq-100 ETF, has since recovered nearly all its losses within four sessions.
This type of event has only occurred four times in the ETF's history since its launch in 1999, none of which happened in the last 25 years. The four instances before were all during the dot-com bubble or subsequent bust, with each date seeing a drawdown of at least 59%. The Nasdaq-100's peak in the dot-com era was 4,704 on March 27, 2000, while the October 7, 2002, low was a 83% decline from the peak.
Despite early comparisons to the dot-com era due to breakthrough technology, a surge in tech stocks, and increased capital expenditures, there are notable differences. The QQQ's current valuation is much lower, with a price-to-earnings ratio of 28, compared to 82 during the dot-com peak. Additionally, AI companies are well-established and profitable, unlike the unprofitable start-ups that contributed to the dot-com bust.
While there are concerns about debt and interest rate hikes, AI demand remains strong, and infrastructure build-out is still in high demand.
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