Lessons from the ’90s: How AI Is Powering a New Investment Cycle

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®
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Photo Credit: Anthony Indraus, Unsplash

Technology spending is accelerating at the fastest pace in decades. The chart below shows that investment in information processing equipment and software grew by +14% year-over-year (YoY) in Q1 2025, the fastest pace since the late 1990s. During the dot-com era, investment in computers and software grew by over +15% YoY before collapsing in the early 2000s as the tech bubble burst. Tech investment rebounded in the mid-2000s but turned negative again in 2008 as economic growth slowed. Spending growth averaged a more modest +5.5% YoY in the 2010s, but it remained well below the highs of the late 90s. The COVID pandemic initially caused tech spending to stall, but it reaccelerated in recent years and is now growing at 1990s levels.

The second chart graphs annual capital expenditures by telecom and artificial intelligence (AI) companies, adjusted for inflation. The data reveals two distinct eras of rapid technology investment. The world transitioned to a more digital society at the turn of the century. In the late 1990s, telecom companies invested heavily to lay fiber, construct cell towers, and build the internet’s physical backbone. Telecom investment slowed in the early 2000s before stabilizing over the past two decades. Today, a new wave of tech investment is underway, driven by advancements in AI. Leading tech companies are investing billions in computer chips to train AI models, data centers to run the models, and new energy infrastructure to support it all. The chart shows that AI Capex could soon surpass the telecom peak of the late 1990s.

The latest tech spending boom has significantly impacted the stock market. Over the past two years, the S&P 500 technology sector gained +66%, outpacing the S&P 500’s +42% return. The “Magnificent 7,” a group of mega-cap AI leaders that includes Nvidia, Microsoft, Amazon, and Meta, returned +89% over the same period, more than double the S&P 500’s price return. The group’s large index weight and ability to convert the AI industry’s momentum into earnings growth have driven the stock market to record highs.

This period is a historical moment, marked by billions being spent to develop a transformative technology. Two takeaways come to mind when reviewing the figures below. First, as the late 1990s telecom boom showed, today’s rapid growth will eventually return to a more normal level. The current growth rate is unlikely to continue indefinitely, and Figure 1 shows tech investment has historically been tied to overall economic growth. Second, today’s spending levels are a reminder that the U.S. economy has a strong track record of innovation and economic resilience. Investing in the stock market offers a way to participate in and benefit from those advancements.

Technology Investment (Year-Over-Year Growth)

US Technology Spending

Inflation-Adjusted Capital Expenditures by Year

US Corporate Expenditures by Year
 

Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 22 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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