A research firm says 4 signs show the AI trade could spark a 30% stock rally that echoes the dot-com era

• A resurgent AI trade could spark a 1999-style "melt-up" in the stock market, BCA Research said.
• The firm defined a "melt-up" as a sharp rally that could take the market 30% higher.
• It highlighted four signs that the AI trade could be entering a late-stage rally.

The stock market looks like it's headed for a 1999 moment, BCA Research says.

The investment research firm said it sees the potential for an AI-fueled "melt-up" in the stock market— a sharp rally in stocks that other forecasters have predicted could be followed by a brutal meltdown.

BCA said that's because the AI trade looks like it's approaching its late-cycle, meaning a rally that looks like the dot-com-era craze could soon be in the cards.

"We went into this year with the view that 2026 could end up being a lot like 2000. That thesis could still come to pass, but given the surge in demand for computers from AI agents, a 1999-type melt-up looks increasingly likely," a team of strategists at the firm said.

A stock melt-up to the likes of the dot-com boom has been on BCA's radar for a while. In the firm's 2026 outlook, strategists said they believed the melt-up could see the US market rise as much as 30%, an increase that could take the S&P 500 past the 9,200 mark.

The AI sector has been a source of both bullish tailwinds and bearish anxieties recently, as investors eye its potential to transform businesses and the economy.

The bulls have won out for the moment, driving historic rallies in the Nasdaq Composite and in chip stocks. The Philadelphia Semiconductor Index (SOX) is in the midst of its longest win streak ever.

The fear, though, is that investors have gotten ahead of themselves, leaving the door open for a sharp correction sometime soon.

BCA said it was monitoring four signs suggesting the AI trade is about to enter a new, late-stage phase of gains.

"Taken together, these indicators suggest that the AI capex boom is reaching a mature stage," strategists wrote, though they noted it was too soon to tell if the AI bubble could burst in the next year.

Here are the signs the firm is watching:

AI adoption rates are climbing

AI usage is accelerating among firms. The Ramp AI Index, a measure of how many US businesses pay for subscriptions to AI platforms, topped 50% for the first time ever in March.

GPU and memory prices are high

Rental rates for GPU chips and memory spot prices have cooled slightly, but soared in recent months and remain near their peaks, BCA said.

For instance, B200 cloud, one type of Nvidia GPU, had an average price of $5.09 an hour in March, up 13% from the prior month, according to the intelligence platform Silicon Data.

Capex spending growth has soared

Tech giants are spending more on AI capex. Amazon, Google, Meta, and Microsoft were estimated to spend $587 billion on capital expenditures this year, according to company statements.

"The risk is not so much that AI will be a dud. Rather, chances are that we end up with an AI-empowered economy that does not require trillions of dollars of data center investments," BCA said.

Financial risk could be rising

There are two signals that suggest financial risk is rising in the AI sector, BCA noted.

First, financing inflows at hyperscalers largely exceeded outflows in the fourth quarter. That was mainly because large tech firms were buying back shares and paying dividends to shareholders, BCA said.

Second, credit spreads for investment-grade tech debt have widened relative to those in the broader credit market, a sign that investors are pricing in greater risk in the sector.

"This is the most worrying set of indicators," BCA said of the outlook for the AI trade.