The long and the short of it: is this 1999 all over again?

By Alan Clarke, Portfolio Manager - Diversified Funds and External Managers at Amova NZ

Originally published on The Post on July 9 2026

Analysis: One of the many famous stories about Warren Buffett is about how, at age five, he set up a lemonade stand in front of a friend’s house, where the area was busier than by his own home.

The lesson from this is to only invest in businesses you completely understand, but also make sure you match up supply with demand. Another sage piece of advice around valuing a business is to be very careful when buying a lemonade stand at the end of summer.

This is a good way to approach the current era of investing, in which the word “bubble” is being used freely.

Anyone who lived through the late 1990s knows how that bubble ended. Back then, all sorts of companies were valued at extreme levels simply because they had “.com” in their name, but so too were the providers of the infrastructure that would eventually carry the internet.

Large and small telecommunications and cabling companies built out huge amounts of capacity that was eventually needed and used, but not until many years later. A few stratospheric years of growth unwound dramatically over the first two years of the new century, and a reasonable question is whether history is threatening to repeat.

The answer depends on how you look at it. Some would say there are pockets within the broader universe of investments that are bubble-like. For example, 16 companies within the technology sector have recorded five-fold share price growth in the past year.

Semiconductor companies have had eye-wateringly good earnings due to the AI-driven demand for their products. But as important, if a little less exciting, is that across the broader economy many old-fashioned consumer, services, and financial businesses are seeing a healthy “new normal” in earnings growth over the last couple of years.

What we don’t yet know is whether the AI-driven earnings will plateau permanently at these high levels, or if this is a spike that will be followed by a drop back. Here is what investors should be looking at:

Start with the earnings

The single most important difference between now and the dot-com era is earnings. If markets were climbing to record highs while earnings went nowhere, we should be genuinely worried. That is not what is happening. Companies are beating expectations, not disappointing against them, and analysts have been upgrading their forecasts rather than trimming them. In 1999, plenty of companies were valued on clicks and eyeballs rather than old-fashioned cash flow. Balance sheets and profit and loss statements were not as strong as they are now, with companies spending real earnings and real cash flow, with very little debt underneath. The foundation is completely different.

One company’s spending is another’s revenue

The other thing worth understanding is how the money moves. The enormous sums the big technology companies are spending to build out AI do not vanish. One company’s capital expenditure is another company’s revenue. That spending flows down a whole supply chain, from the firms designing the chips to the companies building the infrastructure, and it shows up as earnings across a far broader group of businesses than the household names at the top.

It is not just the giants doing the work

A common fear is that a handful of mega-cap technology stocks are doing all the heavy lifting, and that if they stumble, everything else is exposed. There have been stretches over the past few years when that was a reasonable concern. Recently, though, the good news is that the earnings strength has broadened out. It is not only the obvious AI beneficiaries reporting well.

Everything from food and beverage companies to consumer brands to the likes of Mastercard has been delivering. A broader market is a healthier market. This is where paying attention to the fundamentals earns its keep.

There will always be pockets of the market that are in fashion and out of fashion, and with meme stocks and retail trading apps the swings are arguably sharper than ever. But someone bidding a share price up does not make a company any more profitable. When a genuinely strong business gets marked down on a fashionable assumption, the thing that eventually proves the market wrong is earnings. Watching the balance sheet, the revenue, and whether a company is fairly valued for what it actually produces is, in essence, the whole job of an active manager.

Ups and downs – what the semi-conductor industry is
telling us

Back to the point about the lemonade stand at the end of summer – the saying carries a warning that if demand in a cyclical business softens, the business owner can have a problem. Semiconductor companies are not just in fashion; they are perhaps the single biggest beneficiaries of the whole AI boom and were the best-performing industry group in the second quarter, up nearly 60%, and now up nearly 110% over the 12-month period. A lot of the upside surprise to earnings has come from this industry, which is benefiting from genuinely crazy demand.

The second-best performing industry was another direct beneficiary of the demand for AI-related infrastructure. Technology Hardware and Equipment was up nearly 40% for the quarter and 80% for the year.

All this means is that the outlook and expectations for some companies over the next few quarters is off-the-charts high. Some of the larger semiconductor companies are announcing plans to build new factories to meet demand. The question is, how long is that demand going to be there? To make an industrial comparison, if you were manufacturing picks and shovels in the early to middle years of the gold rush, you probably made a lot of money. But if you got into those businesses the year before the gold rush ended (in other words, at the end of summer), you would have overbuilt and created capacity no one needed.

What we don’t have is clear visibility of how much demand there will be for semiconductor chips two, three, five years from now. Are we unknowingly at the end of summer, or will it be warm and sunny for years to come?

The lesson from a strong quarter

Finally, some perspective. The second quarter of 2026 was the strongest global equity return since 2020, when markets rebounded from the depths of the Covid lockdowns. Looking back to returns over the last 35 years, the recent quarter would rank in the top five. That strength came despite the outbreak of conflict in the Middle East earlier in the year. With geopolitical shocks there is often a moment when it becomes clear things are not going to get worse, and markets tend to respond quickly.

None of this means you should stop being careful. Markets at, or near to, all-time highs always warrant a degree of caution. Look at the earnings, look at the fundamentals, and stay focused on the long game. That is the same advice that held good in the 1990s, and it holds good now.

Disclaimer: This information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be relied on as financial advice. Before making any investment decision, you should seek professional advice suited to your personal circumstances. Past returns are no indication of future performance.