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IS AI FUELING A TECH BUBBLE OR JUST A FAMILIAR CYCLE?

Are U.S. large‑cap tech stocks in the late stages of an AI‑driven bubble? It’s a question some investors are increasingly asking.

As Jessica Rabe, co‑founder of DataTrek Research, sees it, one way to put that concern in perspective is to step back and examine the Nasdaq Composite’s .IXIC rolling three‑year returns going back to the 1970s.

In a note published Monday, Rabe explains that a three‑year window helps smooth out the noise of any single year while still capturing full business, interest‑rate, and valuation cycles. Looking across more than five decades, the results are striking.

On average, the Nasdaq has gained about 42% over any given three‑year period, equivalent to a roughly 12% annual pace. Importantly, those three‑year returns have been positive about 84% of the time, underscoring how rarely the index delivers sustained losses over longer horizons.

In fact, DataTrek notes the Nasdaq hasn’t posted a negative three‑year return in around 15 years, a stretch that highlights both the resilience of the U.S. economy and the ability of large‑cap tech companies to continue growing profits through major disruptions.

Historically, negative three‑year returns have only appeared during significant economic or geopolitical shocks, including the dot‑com bust and the global financial crisis, according to Rabe.

To be sure, the Nasdaq has more than doubled over the past three years, rising roughly 118%. But Rabe argues that such gains are “a relatively common occurrence” over the past 52 years and don’t automatically signal a looming downturn. Crucially, today’s advance pales in comparison with the late‑1990s surge, when three‑year returns peaked near 300%.

A clearer red flag, she says, tends to show up over shorter time frames. Historically, doubling in a single year has been a reliable marker of true bubble conditions.

That’s not the case today. With the Nasdaq up about 48% over the past year, Rabe says it’s still “far from certifiable bubble status.”

The greater risk, as the dot‑com era demonstrated, may be exiting too early and missing the outsized long‑term gains that can come from a genuinely transformative growth theme. DataTrek remains bullish on U.S. large‑cap tech stocks, with Rabe concluding that history suggests it’s still premature to label the current rally an “AI bubble.”

(Terence Gabriel)

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