Investors have been bailing on AI stocks in recent sessions over mounting concerns that a bubble is forming in that segment of the market.
Even high-profile names like Sam Altman, the chief executive of OpenAI, have recently cautioned against excessive hype. Still, Alpine Macro senior strategist Chen Zhao sees things differently.
In a recent CNBC interview, Zhao argued the current market environment mirrors the 1990s in key ways – suggesting AI stocks may not be in a bubble. Instead, they’re poised for another significant rally.
Drawing parallels to the dot-com era, aggressive Fed tightening cycles, and tech-driven investment booms, Zhao believes the AI trade still has room to run.
Comparison of interest rate cycles suggests AI is not a bubble
On “Squawk Box Asia”,Chen Zhao pointed to the Federal Reserve’s aggressive rate hikes in 1994, which – unlike previous tightening cycles – did not trigger a recession.
That marked a turning point in monetary policy, and Zhao sees a similar dynamic playing out today. The Fed raised rates sharply in 2022, yet the US economy has remained resilient.
With the central bank now pivoting toward easing, he believes the shift in monetary policy could set the stage for a powerful rally in equities – particularly in tech.
Similar investment booms indicate AI stocks have further to go
In the 1990s, a huge surge in internet-related investments, fueling the dot-com boom. Today, Zhao sees a parallel in the explosion of spending on artificial intelligence and data centers.
What’s striking, Zhao added, is that the contribution of data center investment to GDP growth is now comparable to consumer spending – a historically dominant driver of the US economy.
“That was quite shocking,” he said. This level of capital deployment, he argues, reflects a structural transformation rather than speculative excess, reinforcing the case that AI stocks aren’t in a bubble.
Rate cuts tend to set the stage for the next leg up in tech stocks
Chen Zhao also drew comparisons between market volatility in the late ’90s and recent episodes.
In 1998, the LTCM crisis triggered a 20% drop in equities, prompting the Fed to cut rates three times – setting the stage for a parabolic move in the tech stock prices.
According to the Alpina Macro strategy, a similar pattern has been unfolding in 2025. Instead of the LTCM crisis, we had “tariff tantrum” this year, where markets fell roughly 27% before rebounding sharply.
“The speed of recovery was basically the same,” he said. With the US central bank now in an easing cycle, Zhao believes AI stocks – especially the so-called “Magnificent Seven” – could see another major leg up in the second half of 2025.
“Bull markets don’t die of old age,” he reminded. “They get slaughtered by central banks.”
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