Northland sees AI bubble parallels with dotcom era, cuts two stocks

Northland Capital Markets has published a research note drawing comparisons between the current artificial intelligence investment cycle and the dotcom bubble of the late 1990s and early 2000s.

The firm's analyst outlined several structural similarities, including circular financing arrangements among major AI companies, the use of GPUs as loan collateral, and heavy reliance on debt to fund infrastructure buildouts by large cloud providers. The analyst compared this to vendor financing extended by Lucent and Cisco during the dotcom era, which later resulted in significant debt write-offs.

Northland revised its projected peak for the current AI investment cycle from 2027 to calendar year 2028, while noting that rising interest rates, inflation, geopolitical conflicts, and project cost overruns make precise timing difficult to determine.

The firm noted that the Philadelphia Semiconductor Index peaked on June 21, 2027, and that while some AI companies continue to reach new highs, most AI semiconductor and capital equipment stocks have struggled to follow.

Among its sector views, Northland stated that connectivity-related companies appear most resilient, memory-related companies are over-earning, and the AI accelerator and GPU market is becoming more competitive.

As a result of its analysis, Northland downgraded Semtech (NASDAQ: SMTC) and Astera Labs (NASDAQ: ALAB), citing both stocks trading above the firm's price targets.

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