Investors seeking to capitalize on artificial intelligence are harkening back to another period when a technological advancement caused a market frenzy: the dot-com era.

Stocks are far from the mania that developed around internet-based businesses in the 1990s when the Nasdaq 100 soared more than 800% in five years. But surges in tech shares are posing similar challenges: how to pick winners and losers based on a nascent technology with vast potential that has yet to alter the economic landscape.

The similarities are undeniable for Michael O’Rourke, chief market strategist at Jonestrading. While he says it’s still early in the investing cycle, O’Rourke is keeping a close eye on valuations, where fear of missing out can quickly send stocks into fantasy territory.

“If you pay a bad price even for a good asset it’s still a bad price and that’s where the risk is,” he said in an interview.

These days, conversations about frothy valuations start with Nvidia Corp., the chipmaker whose grip on the market for semiconductors powering generative AI programs like ChatGPT has made it the best-performing stock in the S&P 500 by far.

Nvidia is undoubtedly benefiting from a surge in investment in computing power, but its valuation is in uncharted territory. The company’s price-to-sales ratio hit a record 40 times this week as its market value again rose above $1 trillion.

“People are assuming this thing is going to grow at 30% as far as the eye can see,” said Michael Mullaney, director of global market research at Boston Partners. “Companies just don’t do that.”

Still, one big difference to the dot-com era is the high quality of the companies leading the gains, he said, in reference to the likes of Nvidia and Microsoft Corp. “These are good companies with great profit structures” and won’t get “wiped out” like many firms did at the beginning of the century, he said.

Nvidia’s soaring valuation is drawing comparisons with Cisco Systems Inc. more than 20 years ago. Just before the dot-com bubble burst in early 2000, the maker of networking systems that underpin the internet reached a market value of more than $500 billion. It’s a record Cisco hasn’t come close to since, despite sales nearly tripling over that period. Its price-to-revenue ratio hit a high of more than 60 times in March 2000. It’s now priced at about four times.

The stock fell as much as 89% from its March 2000 peak, and it’s still down by more than a third from that level.

More than 20 years later, Cisco remains the biggest maker of networking gear, yet history shows most companies seen as early winners fail to stay on top.

Take Sun Microsystems. The maker of server computers saw its market value balloon to more than $200 billion in early 2000, only to sell to Oracle Corp. less than a decade later for $7.4 billion. At its peak, Sun’s price-to-sales ratio hit 13 times.

According to data compiled by Bloomberg, of the 10 best performers in the Nasdaq 100 in the year leading up to the index’s 2000 peak, only two still exist as standalone companies today — Qualcomm Inc. and Check Point Software Technologies Ltd.

Wedbush analyst Daniel Ives sees similarities between now and the dot-com era, but says we’re still in the early stages rather than 1999, when the Nasdaq 100 doubled ahead of the bust the following year.

“AI is the most transformational technology we have seen since the Internet started to take shape,” Ives wrote in a research note. “AI is driving the tech sector to a ‘1995 moment’ with a long runway of growth ahead that we have not seen since the 1990s.”

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Nvidia Corp. stock has almost tripled this year and is sprinting toward its next milestone: de-throning Amazon.com Inc. as the fourth most-valuable US company. The chipmaker was worth $1.06 trillion as of Wednesday’s close, closing in on Amazon’s $1.3 trillion. The e-commerce giant is also rallying, but at a much slower rate, with its stock up 51% year-to-date.

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--With assistance from Brad Skillman and Matt Turner.