Is AI the New Internet? An Optimistic View of the Stock Market

When market observers compare the current stock market to the boom of the 1990s, it's often to signal risk. As analyses of the internet bubble and the current AI surge deepen, "bubble" analogies continue to emerge. However, Julian Emanuel, Chief Equity and Quantitative Strategist at Evercore ISI, takes a highly optimistic view of this connection. In his latest report, Emanuel and his team state that "a technological revolution is driving the stock market, valuation multiples, and social construction to new heights." US stocks are experiencing a technology-driven structural bull market: despite facing a non-recessionary bear market, the market has quickly rebounded to record highs, propelled by Federal Reserve rate cuts. This situation is reminiscent of the internet revolution at the turn of the century. "Today's AI bull market is of the same type," Emanuel says. In other words, investors are witnessing a "once-in-a-lifetime" technological revolution opportunity. Evercore ISI believes this means the bull market will continue until 2026, with a significant rise in the S&P 500. This is the most optimistic forecast on Wall Street.

Why the Optimism About AI?

What makes Emanuel so optimistic about the current AI wave – especially considering the lessons learned from the stock market crash after the dot-com bubble in the early 2000s? Emanuel explains that AI's impact has "surpassed" the internet in just three years. Although AI applications are only just beginning to accelerate, their impact has reached all aspects of society and industry. Additionally, the stock market has seen a broad-based rally from 2022-2025, in contrast to the dot-com bubble peak when market breadth was negative.

Differences Between Then and Now

Emanuel adds that unlike the late 1990s, the utilities sector, best suited for supplying power to AI data centers and related businesses, and the industrial sector, which is driving the construction of global AI infrastructure, are participating alongside the technology sector in the 2025 bull market. Emanuel acknowledges that some investors are concerned that the AI-driven rally has largely peaked. "We disagree and are therefore giving a year-end 2026 S&P 500 target of 7750 – based on 2026 EPS of $287 and a 27x multiple."

Valuations and the Federal Reserve

From a historical standpoint, a 27x multiple is high, but Emanuel points out that during the internet technology revolution in 2000, the S&P 500 valuation reached 28x. Furthermore, similar to the internet revolution era, the AI revolution will also receive "easing support" from the Federal Reserve. "The key difference is that in 2025-2026, regardless of the economic situation, the increasingly Trump-imprinted Fed will not raise interest rates before the 2026 midterm elections," Emanuel says. In fact, Evercore ISI believes that excessive stimulus from the Federal Reserve could lead to a bubble, driving the S&P 500 to 9000 in 2026 – based on $300 EPS and a 30x multiple.

Caution is Warranted

It's important to clarify that Emanuel and his team still believe that the market may experience a short-term pullback. He raised his year-end 2025 S&P 500 target from 5600 to 6250, citing that "market narratives in an innovation-driven bull market need real-time testing and pullbacks and panics are part of the bull market". Currently, the Cboe Volatility Index (VIX) is low, meaning that the cost of downside protection is cheap, and put options are attractive as a tool to hedge against short-term stock market pullbacks. But Emanuel believes that if a pullback does occur, investors should buy the dip. Emanuel concludes that before the bubble inflates and eventually bursts, this bull market will experience a period of "rational exuberance" – which is characterized by strong capital market activity, which has accompanied the later stages of every major structural bull market over the past 25 years (2021, 2007, 2000), but has not yet appeared in this bull market. "All of this is still waiting for us." This suggests further potential growth ahead. }