Hey guys, it's Sasha On Wednesday 16, December 1998, a relatively unknown analyst from Oppenheimer called Henry Blodgett increased his price target for Amazon stock from 150 to 400 In his research note: Henry said that Amazon is in the early stages of building a Global electronic retailing franchise that could generate 10 billion dollars in revenue and earnings per share of 10 within five years instead of five years. It took Amazon seven years to reach 10 billion dollars in revenue and 19 years to get to the 10 earnings per share. But that didn't really matter because on that, Wednesday in December 1998, shares of Amazon Rose by 19 to 289 dollars as the stock market was beginning to hit peak.com Fever Amazon was the second highest Rising stock on the stock market that day on December 16th, books a million another online bookstore went up 80 in one day because they all also happened to sell books online and selling stuff online was the future. Bro Other online retail stocks also benefited eBay went up 11 on Barnesandnoble.com was up seven percent on the day and at the time this Amazon valuation appeared highly unlikely Henry laid out part of his rationale for a huge price Target increase while Amazon was continuing to lose money every quarter, he said as with all internet stocks and Amazon valuation is clearly more art than science, and we believe that the stock will continue to be driven higher in large part by the company's astounding Revenue momentum.

Several analysts publicly said that this valuation is based on hot air and has no justification in numbers, but only three weeks later, on January 6, 1999, the stock did reach 400 split adjusted because the stock split three to one the day before because it just kept going up so much. and immediately after this happened, Henry Blodgett was instantaneously elevated to a god-like analyst status. he was offered Edition at Merrill Lynch reportedly getting a huge pay rise and he became a popular cheerleader of.com stocks on CNBC the sort of 1999 version of Dan Isa Kathy Wood But just a year later in 2000, the.com Bubble Burst Blodgett lost most of his own seven hundred thousand dollars that he personally invested in tech stocks and he lost Merrill Lynch a huge amount of money that they invested based on his belief that Tech stock valuations are more art than science and shortly after they lost a gigantic amount of money, he was forced to part ways with a company and went on to never get another job as an analyst afterwards. Ever two years later, the SEC charged them with Securities fraud from when he was working at CNBC sorry, did I say CNBC I meant Meryl Lynch The SEC charged them with issuing materially misleading research reports on internet companies and making exaggerated or unwarranted claims about them to customers.

The case was settled eventually with a 4 million a plea deal with Henry Blodges, never admitting officially any wrongdoing, but at the same time as he did not do anything wrong, he also received lifetime bans from ever working in the Securities industry by the SEC, a lifetime banned by the New York Stock Exchange and the lifetime ban by the Nasd, which is the old organization that has now been replaced by Finrun. So this guy is now banned from ever working in the finance industry pretty much because of making up to Pump Stocks. and today Henry Blodgett is the CEO or chief editor of Insider used to be called The Business Insider that publication that a few months ago printed a new story about Elon Musk offering a flight attendant a horse in exchange for a massage with a happy ending, and Insider also prints about 420 news stories every day about AI stocks going to the moon and being horribly undervalued because of course, you cannot value them using outdated, traditional approaches because valuations of AI stocks are more arter than science. Some people are beginning meaning to point out that the recent craze about artificial intelligence has some similarities with the.com bubble back in 99 and 2000.

You can't watch CNBC for longer than five minutes before an analyst turns up to talk about the next AI stock. That will definitely, probably, most certainly maybe if you're lucky, go 10x in the next three weeks. Company evaluations are not done on multiples of profit anymore. They're not done on multiples of Revenue, but instead the latest trend is to apply a multiple to the number of times the word AI is mentioned in the quarterly report and on the earnings score.

Now the big question is what lessons can be learned from the.com Crash and how much do those lessons apply Today after Amazon hit 400, it didn't take long for the stock to go all the way to 600 before the.com crash wiped everything out and the stock lost 95 of its value. So on the one hand, Henry Blodgett and the other analysts hyping.com stocks were right because those stocks did go up in value during the bubble, and they were praised a lot during the bubble for addicting This, and on the other hand, they were wrong because then the stocks collapsed by over 90 percent after the bubble burst, and in the case of Blockchain's Amazon valuation, he still ended up being right in the way in the long term because even if you bought in at the 400 valuation, suffering from Fomo after the stock blew up and then it was predicted to go up even more. And it did go up even more. If you bought then and you held the stock until today, you would still have gotten a 6745 return on your money, which is 19.6 per year compounded.

although today's Amazon valuation is based on a P E ratio of 304, So yeah, but the important lesson is this: there are many. There were many internet companies during the.com crash that grew to an insane valuation based on the combination of hotel and Traders gambling money in the stock market that was booming and would only ever go up. But that exuberance hides the fact that Internet as a technology has gone on to completely revolutionize every aspect of our lives. and a few companies that did not turn out to be Duds have made their investors incredibly.

Rich The problem is that back on the 16th of December 1998, Amazon was only the second highest Rising stock. The number one stock was Books A Million, which went up 80 percent in a day. In fact, at one point, Books A Million increased in price from three dollars per share to 47 per share in one week after the company announced a new website design roughly the equivalent of mentioning the word AI 1000 times and one earnings call today. The big lesson of the.com bubble is that investors were not wrong about the future.

They were not wrong about the internet. In fact, if anything, investors back in 1998 severely underestimated what the Internet would do. At this point Google wasn't completely unknown three-month-old company after just collecting their very first funding round. but during a bubble, investors think that everything that looks shiny is gold.

To an investor holding an AI Hammer everything that they see is a nail back in 1999. If you picked Amazon and you held the stock as a long-term investor, you would have absolutely nailed it. You would be rewarded handsomely and you would have made a crazy return. But at the same time, just a few months later, you would have lost 95 of your money and you would have had to wait 10 years until 2009 for Amazon stock to return to its 1999 price.

And during this period, you might not have felt as happy with your decisions. And today's stock market really does not resemble what we saw back in 1999. So it's important to be aware of the fact that the two are just not the same. Microsoft The biggest company by market cap back in 1999, traded at a PE of 75.

Back then, today's the second biggest company but has a P E ratio of 38. half General Electric was the second biggest company in the index at the time and had a PE of 27. Apple stock is the biggest company by market cap today and has a PE of 31. the S P 500 had an average PE of 30 back during the.com bubble and today it's at just 22..

So the S P 500 was almost 40 percent more expensive back then than it is today, on average. A point that many people have forgotten though, is that the.com crash was not a market white collapse. People talk about it as though every single company went down and it was the worst thing ever. In fact, it was the opposite.

The internet company bubble blew up in the face of investors chasing the latest fad, and as the NASDAQ fell 58 during the crash, the average stock in the S P 500 if you ignore the valuations was actually up nine percent. The reason the S P 500 overall declined during the crash is because so many of these NASDAQ tech companies had very high blown up valuations that exploded 10x out of nowhere. Cisco was that price to actually ratio of 200, the sort of 1999 version of Nvidia that currently trades at a PE of 220. But the market outside of the overvalued hype stocks actually had a really good year.

in 2001. The S P 500 equal weight index that ignores market caps and holds an equal amount of each stock actually went up 36 percent during the crash when the NASDAQ fell 58 in 2001.. Now today we know that artificial intelligence is here to stay and in the long run we will all reap the benefits of AI improving productivity, improving the way they will lead. Our Lives As a technology in many aspects it is going to be revolutionary, but AI is not something brand new.

It has been slowly developing for many years already. It just so happens in the last few months was the first time when any anyone started paying attention and not every company that has the AI Halo around it will end up being a good investment. In fact, history says the betting against the Mindless hype of AI, the Mindless hype of whatever the latest thing is maybe a much more lucrative investing strategy that doesn't lose you a shitload of money because every company that has any relationship to artificial intelligence has seen valuations go into the stratosphere regardless of whether there is marriage to it. and unless you believe that every single one of these companies will become the leader of the future, the likelihood is that a significant number of them will not warrant those valuations at some point in three months time and three years time.

Whenever that happens, being cautious about companies valued as an art instead of a science does not mean that you don't understand the future or that you are too dumb to understand the power of AI that you don't get it because that's the normal comment that you see all the time. When you talk about this kind of thing. Every day you you read news stories and hear analysts on CNBC egregiously promoting the latest AI stock, often making claims that our best, dubious and at worst could result in lifetime bans from working in finance and massive losses for everyone listening. And the stocks that are being promoted keep going up so the masses keep piling in, suffering from massive Fomo and wanting to own the latest best AI stock because that's what everyone else wants to tell them to invest in.

The main lesson that you can take away from the Com crash is that adjusting your investing strategy based on the latest hype Trend could mean that you jump on the right bandwagon at the right time and write it all the way up although it is kind of already a little bit late. and then you can go on Twitter and tell everyone how amazing your powers of Prophecy are. and maybe Merrill Lynch will then give you a job and you can go and repeat the same on CNBC I Think from a high perspective, this is not a hype cycle. I View it as more of a 1995 moment than in 1999.

Okay, that gave us four more years. C3.ai is a company that is particularly popular right now. In fact, Dan Ives The guy who was always on CBC has recently started pumping it and increased his valuation of the company by a hundred percent. even though none of the retail investors actually know what it does.

It does have the word A I in the company name, and ultimately, that is the only thing that matters. Their most recent quarterly results show that Revenue has grown 0.1 percent in the last year, even though there is a hype bubble going Ai and their operating loss has increased 37 percent to 73.3 million dollars, which makes for a negative 101 margin. a negative 101 margin. So the company's costs are more than double their revenue and this situation is actually getting a lot worse quite quickly.

But because the company has the word Ai and the name, the stock is up 301 so far this year and suddenly people are talking about it on CNBC If this doesn't begin sounding alarm bells in your head, I don't really know how much more I can help if you want to join this bandwagon and sell your stocks so that you can go and buy AI all power to you and maybe Nvidia Palance here and C3 will become the new Google Amazon and Microsoft but then again, maybe they might not and they could be a Cisco which is still trading below it's.com bubble valuation some 24 years later or they might go bust like one of the very many investor favorite internet meme stocks from 1999 like Pets.com If you found this video useful and you want to continue the conversation, you can join my patreon. The link is in the description and you will get access to my Discord community and I will see you in there I'm in there all the time. Thank you so much for watching and I'll see you later.