| DAILY ISSUE The Case for Panicking Early: Lessons from the Internet Bust VIEW IN BROWSER Hello, Reader. Imitation is the sincerest form of flattery, but what happens when the original isn’t so flattering? That’s where we find AI stocks today… mirroring the turn-of-the-century dot.com bubble burst. A few fretful investors have begun to worry that an “AI bubble” may be nearing its breaking point – and that a subsequent bust could wreak havoc on Wall Street. And it’s not just investors. It’s the kingmakers, too. In October, Jeff Bezos said, “[AI] is a kind of industrial bubble.” When the Internet turned the world upside down, it sparked such a stock market frenzy that the most powerful central banker said stock prices were being driven up by an “irrational exuberance.” We were told the “information superhighway” would revolutionize how we work, communicate, socialize, and play. It eventually did all that and more. Of course, great new technologies can dazzle us, like both the Internet and AI… And still usher in a devastating crash. If you were investing back then, you’ll remember the euphoria… and the depression that followed. Today’s AI boom is checking nearly every one of the boxes that indicated a bubble back in 1999. So, in today’s Smart Money, I’ll detail the five warning signs that are currently flashing red hot… and the steps you can take to keep your portfolio in the green. | Recommended Link | | | | When bubbles pop, money rotates to quality. Eric Fry found businesses with proven models AI can't touch: a drive-through beverage chain with a cult following, an outdoor brand so beloved that customers tattoo its logo on their bodies, and more. These “AI Survivors” are the stocks you want to own before the bubble pops. Details here. |  | | The 5 Signs of Danger Ahead The AI boom mirrors the Internet Bubble across five critical danger signs… 1. Bubble-level valuations Driven by AI stocks, the P/E ratio just hit a 25-year high. The price-earnings ratio just divides a stock’s price by its annual earnings. In other words, how many dollars does it take to buy $1 of a stock’s earnings? Over the long term, you usually pay about $16. Today, you’re paying over $40 for $1 of earnings. That isn’t just a high number… it’s what we saw in 2000 right before Internet stocks imploded. 2. Extreme concentration The top 10 stocks represent 40% of the market (vs. 23% in 2000). That means that a stumble by just one or two of those stocks can be an anchor that drags down all stocks. Take Nvidia Corp. (NVDA), for example. It is worth more than the entire Canadian stock market! This kind of concentration increases the risk and fragility of the entire market. We saw this scenario play out during this week’s AI selloff. 3. Risky IPOs During the Internet Boom, it seemed like anything with “.com” in its name went public. Similarly, speculative companies are going public with minimal revenues. Take Figma, the hot cloud-computing software platform that went public in September and rose 250% in its first day. The stock lost about half its value in the month after its debut. The stock market is packed with AI plays that feature more hope and hype in their business plans than reality and revenues. 4. Circular financing In the dot.com era, companies and others began lending money to their own customers, creating circular deals and artificial revenue. Similarly, OpenAI is buying billions of dollars in Nvidia processors… while Nvidia is investing $100 billion in OpenAI. 5. Record stock ownership Studies show that the average American has more money invested in stocks than ever before, even more than the days of the Internet Bubble. This will amplify a crash impact. When the air starts hissing out of the AI bubble, I don’t think investors will just ride it out. Instead, as alarm sets in and everyone tries to sell at the same time, a trickle of selling could quickly become a flash flood. So, the selloff could be even worse than in 2000. Now, during the waning days of the dot-com boom, I was running an institutional research service. And I didn’t just survive the dot.com bust – I was able to thrive. And I am using the same playbook this time around… How I Survived the Internet Bust If we rewind the tape to March 2000, when the dot-com bubble finally met its pinprick, the entire technology sector began to lose altitude almost immediately. But not every corner of the market followed it down. In the midst of that harrowing collapse, finding successful investments was not easy, but it was possible. Back then, I recommended selling short numerous high-flying tech stocks and buying several non-tech plays. On the “Sell” side, I suggested dumping stocks like Softbank Group Corp. (SFTBY), Motorola Solutions Inc. (MSI), and Cisco Systems Inc. (CSCO) – all of which tumbled more than 80% over the ensuing two years. On the “Buy” side I recommended a diverse group of non-tech stocks like… - Royal Garden Resorts (MINT.BK) – A Thai hotel company
- Freeport-McMoRan Inc. (FCX) – A global copper and gold miner
- Humana Inc. (HUM) – A managed health care company
- Christian Dior SE (CHDRY) – A French fashion house
- The Indian Hotels Co. Ltd. (INDHOTEL.NS) – A leading Indian hotel company
- Adidas AG (ADDYY) – A leading brand of athletic shoes and leisurewear
As the chart below shows, these six stocks delivered triple-digit gains during the early years of the dot.com bust, while highfliers like Cisco, Amazon, and Microsoft Corp. (MSFT) tumbled more than 50%. 
I am not expecting history to repeat itself exactly during the current AI boom, but I do expect it to rhyme. Specifically, I expect many non-AI stocks to outperform their AI counterparts over the next few years. Past performance won’t pay today’s bills, of course. But the lessons from that period still matter. Two stand out in particular… - When markets grow frothy, moving away from the froth is often wise.
- You must panic in advance. If you wait to reposition until fear is everywhere, it’s already too late.
The key, though, is to panic properly. That simply means preparing. I’ve already started, and I’d like to share steps you can take today to prepare, too. Don’t Just Panic in 2026: Prepare Generally speaking, proactive preparation works better than reactive repairing. The best time to reinforce your house is not when the hurricane is already tearing off the roof, but while the sun is still shining. That’s the posture I recommend as we head into the new year. I expect any future AI bust — whenever it arrives — to rhyme with the dot-com bust. And it’s why I’ve been gradually diversifying away from direct AI momentum plays and toward areas with sturdier foundations. These are companies with proven business models immune to AI disruption that could deliver substantial gains – all while AI stocks crater. In my brand-new, AI Survivors broadcast, I dive into these types of companies. I also share how you can find six overlooked stocks that I currently recommend to prepare against the eventual AI Bubble burst. I believe these companies could surge as investors rotate out of overcrowded AI trades. Click here to watch my free presentation now. Regards, | 
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