The 2022 bear market was on track to be a typical crushing of a super bubble. However, the sudden, tangible emergence of AI provided a powerful new investment theme that changed animal spirits and halted the market's full reversion to its mean. This interruption of a bubble's collapse by a new bubble is a unique historical event.

The current AI boom mirrors the dot-com era. The underlying technology is revolutionary and will transform the economy, but valuations may have already priced in decades of future growth. This means investors buying now risk poor returns even if the companies ultimately succeed, as both technology enthusiasts and valuation skeptics can be correct simultaneously.

The current AI-driven CapEx cycle is analogous to historical bubbles like the 19th-century railroad buildout and the dot-com boom. These periods of intense capital investment have historically led to major economic downturns and secular bear markets, suggesting a grim multi-year outlook beyond the current cycle.

Unlike the dot-com bubble's revenue-less companies, the current AI wave involves companies that can deploy capital and immediately generate revenue. This indicates real value creation and suggests we are in an early, sustainable phase of the cycle, not a speculative peak.

The comparison to the dot-com bubble is incomplete. The current AI hype cycle hasn't yet been fueled by low interest rates or widespread leverage—factors that drove the final mania phase of the 1999 bubble. This suggests the market could get 'a lot crazier' before a significant correction.

Despite numerous world-changing innovations over 150 years (electricity, PCs, internet), US stock market valuations (via CAPE ratio) have only been higher once, in 2000. This implies an extreme level of optimism is priced in for AI's impact on corporate profits compared to historical tech booms.

Unlike the speculative internet bubble, today's market is supported by an 'early cycle earnings backdrop' following a recent rolling recession. Capital is not just chasing long-term AI dreams but is also flowing into classic cyclical winners with strong current earnings, indicating a more fundamentally sound recovery.

The current AI market resembles the early, productive phase of the dot-com era, not its speculative peak. Key indicators like reasonable big tech valuations and low leverage suggest a foundational technology shift is underway, contrasting with the market frenzy of the late 90s.

The current environment shares key traits with 1999: a narrow, AI-driven market and extreme valuation gaps between large-growth and small/mid-cap value. This parallel, combined with a backdrop of economic acceleration, suggests a period of significant outperformance for SMID value stocks may be ahead.