Putting aside US-Iran tensions and high oil prices, which industries can maintain independent strong performance in the future?

Report Summary

1. 1999-2000: The Impact of the Kosovo War on the Tech Sector

In last week’s weekly report, we focused on: the 1999 Kosovo War—oil prices rising—US inflation—Fed rate hikes—and their effects on the US stock market and the tech sector.

The key conclusion is: the war-driven oil price increase pushed inflation higher. The Dow Jones Industrial Average experienced a phased slowdown in Q3 1999, peaking and then declining in January 2000; meanwhile, the Nasdaq tech sector performed more strongly, unaffected by tightening, with its bubble peak lagging the Fed’s first rate hike by nine months.

2. 1999-2000: History proves that independent high-growth industries can temporarily overcome high oil prices and rate hikes

(1) The denominator side: Kosovo War triggered liquidity tightening

In early 1999, OPEC production cuts plus the Kosovo War (March–June 1999) caused oil prices to rise from $10 to over $30 per barrel; the Fed resumed rate hikes in June 1999, totaling six increases by May 2000, shifting US liquidity toward tightening.

(2) The numerator side: Millennium bug replacement cycle supported high growth expectations

The Y2K narrative fermented from 1996–1998, with mainstream media coverage, Congressional records, presidential speeches. Priority was given to fixing hardware and system bugs in finance, healthcare, military, and government, leading to order booms in the tech supply chain in 1998–1999.

Correspondingly, leading tech companies’ performance in 1999: Dell’s net profit growth at 55%, Microsoft 73%, IBM 22%, Intel 21%, all maintaining high or significantly accelerated growth compared to 1998.

Market expectations held that, with the arrival of 2000, the replacement cycle driven by system upgrades would continue.

(3) 1999 market performance: strong fundamentals, overcoming liquidity tightening, tech bubble valuation

The Nasdaq 100’s EPS growth in 1999 was 60%, with a P/E (TTM) of 95x, and a forward P/E of 65x.

1999 saw intensified tech bubble expansion, driven by expectations that the millennium would further boost replacement cycles among small businesses and individuals. The prosperity of the tech sector outpaced the impact of rising rates, pushing the index to new highs.

(4) 2000 market performance: deteriorating fundamentals, even the last straw can break the camel’s back

The Y2K bug did not materialize; media accused it of being a “tech industry scam.” The peak in March 2000, seemingly burst by Microsoft’s antitrust issues, was actually a negative spiral in fundamentals.

Companies’ pre-investments in upgrades and replacements exhausted industry demand for the next 2–3 years. Many tech giants’ earnings reports in March–April 2000 missed expectations; some dot-coms went bankrupt.

By late 2000, US inventory levels of computers and electronics reached historic highs, further suppressing future earnings. By 2001, the Nasdaq 100’s profit growth plummeted from 60% in 1999 to -50%, marking the end of the tech myth.

3. Returning to the present: Aside from geopolitics and high oil prices, which industries might maintain independent high growth?

Currently, overseas AI supply chains, such as optical communications, have a visibility of 27 years, remaining a clear growth direction and the main position of institutional holdings. However, this is relatively linked to Middle East conflicts (oil prices → US interest rates → US AI → domestic supply chain), with short-term volatility still hard to control.

Drawing from the tech bubble experience, identifying industries that can sustain independent high growth—less sensitive to geopolitics and high oil prices—would provide strategic advantages regardless of how US-Iran tensions evolve.

From a risk management and hedging perspective, we suggest, beyond overseas computing power, allocating to two sectors with upward fundamentals and less oil-price sensitivity: energy storage (inverters/lithium batteries) and domestic AIDC (especially ByteDance-related chains).

Risk Warning: Geopolitical risks, overseas inflation risks, and low expectations for domestic growth stabilization policies.

Main Report Content

1. This Week’s Viewpoint

In last week’s report, we detailed how the 1999 Kosovo War transmitted to US asset prices: Kosovo War—oil prices rising—Fed rate hikes—impact on US stocks and tech.

Core conclusion: In the first half of 1999, escalation of the Kosovo conflict caused Brent crude to rise from $10 to over $30 per barrel, prompting the Fed to start a new rate hike cycle in June 1999, with six hikes in total.

During this period, the Dow, more related to industrial costs, oscillated and retreated in Q3 1999, constrained by oil and rate hikes, then peaked and declined in January 2000 after the tech bubble surged. Conversely, the Nasdaq index was unaffected by liquidity tightening, reaching a peak in March 2000, with a 91% increase from the previous low, and the high point lagged the Fed’s first rate hike by nine months.

This raises a current question: when liquidity (negative) diverges from industry cycles (positive), which does the market prioritize?

Considering the 2000 tech bubble, what stocks today are less sensitive to high oil prices and inflation, with independent high growth?

(A) 1998–2000: Independent high-growth industries can overcome high oil prices and rate hikes

(1) The denominator: Kosovo War, oil prices, liquidity tightening

In 1999, geopolitical conflicts and rising oil prices challenged the “blonde girl” narrative. After the Asian financial crisis, the global deflation cycle reversed, and commodity prices rebounded. Additionally, early 1999, OPEC and non-OPEC countries jointly cut production, combined with the Kosovo War (March–June 1999), pushing oil from $10 to over $30 per barrel. US CPI inflation also rose rapidly, prompting the Fed to resume rate hikes in June 1999, raising the federal funds rate from 4.75% to 6.5% by May 2000.

(2) The numerator: Y2K replacement cycle supporting high growth expectations, less sensitive to oil and rate hikes

However, stock performance, especially in tech, was not affected by tightening expectations. The sequence: Kosovo War (March–June 1999) → oil prices rise → Fed hikes (June 1999–May 2000) → economic slowdown → tech bubble burst (March 2000). This was a gradual process, not instant.

The core reason for the strong market in 1999 was the Y2K-driven replacement cycle, providing robust support for the US tech industry’s fundamentals.

Looking at hardware demand cycles: 1990–1995 was a rapid PC penetration phase; by 1996–1997, growth slowed, demand softened.

But the Y2K narrative sparked a replacement wave in 1998–1999 across servers, mainframes, PCs, and software, reversing expectations of demand slowdown and fueling a surge in orders.

Mainstream media, presidential speeches, and government agencies prioritized fixing hardware and system bugs, leading to order booms in 1998–1999.

Performance of listed companies also confirms Y2K’s impact. 1997–1998, tech giants’ fundamentals declined; but the Y2K order surge created a brief boom, decoupling their performance from oil prices and rate hikes.

ROE: 1990–1996, tech leaders achieved over 40% ROE; 1997–1998, ROE declined with slower internet and PC growth; 1999, capital expenditure boom from Y2K temporarily stabilized ROE, which then fell sharply after 2000.

EPS growth: 1999 Dell’s net profit +55%, Microsoft +73%, IBM +22%, Intel +21%, all high or significantly accelerated compared to 1998.

(3) From 1999–2000 tech performance: high fundamental growth overcoming high oil prices and rate hikes, tech bubble valuation

1999 market: high growth in tech outpaced oil and rate impacts, valuation bubble

Nasdaq 100’s EPS growth in 1999 was 60%, with a TTM P/E of 95x, and a forward P/E of 65x. The year saw intensified bubble expansion, driven by expectations of the millennium fueling further replacement cycles among small businesses and individuals. The prosperity of tech outpaced rate hikes, reaching new highs.

By 2000: when fundamentals could no longer sustain high growth, even the last straw could break the camel’s back.

Y2K did not occur; media called it a “tech industry scam.” The March 2000 peak, seemingly burst by Microsoft’s antitrust issues, was actually a negative spiral in fundamentals.

Companies’ pre-investments in upgrades and replacements exhausted future demand. Many tech giants’ Q1–Q2 2000 earnings missed expectations; some dot-coms went bankrupt.

By late 2000, US inventory levels of computers and electronics hit record highs, further suppressing future earnings. By 2001, Nasdaq 100 profit growth fell from 60% in 1999 to -50%, ending the tech myth.

(B) Returning to today: aside from conflicts and high oil prices, which industries might sustain independent high growth?

Currently, overseas optical communication and AI supply chains have a 27-year visibility, remaining a clear growth direction and main institutional holdings. However, this is linked to Middle East conflicts (oil prices → US interest rates → US AI → domestic supply chain), with short-term volatility hard to control.

Drawing from the tech bubble experience, industries that can maintain independent high growth—less sensitive to geopolitics and oil prices—would have strategic advantages regardless of US-Iran developments.

From a risk and hedging perspective, beyond overseas computing power, we suggest focusing on two sectors with upward fundamentals and less oil-price sensitivity: energy storage (inverters/lithium batteries) and domestic AIDC (especially ByteDance-related chains).

1. Energy Storage: overseas, Europe and Australia see a recovery in household storage; domestically, lithium battery supply chain is rebounding.

As of Q3 2025, energy storage inverter companies face profit pressure and inventory digestion. By 2026, policies in Europe and Australia may reverse the current difficulties for Chinese export companies. High-frequency export data shows China’s inverter exports surged in early 2026.

Thus, excluding oil prices, energy storage inverters are already in a recovery phase, with European energy concerns accelerating this trend.

Domestic large-scale storage: 2026 is expected to see high installation growth, reversing lithium battery and upstream material equipment downturns. As of Q3 2025 and annual reports, companies across the supply chain show signs of reversal, with profit growth turning positive. Future price increases and orders for lithium batteries may continue into Q1.

2. Domestic AIDC chain: under demand explosion, AIDC construction is expected to accelerate, boosting upstream and downstream.

Due to limitations of inference chips, domestic AI development lags behind overseas by 1–2 years. Demand-side: in 2025, explosive growth of tokens (e.g., Baidu’s ERNIE). In 2026, as chip supply bottlenecks ease and inference demand accelerates, domestic AIDC construction may speed up, replicating North American AI growth in 2025. We especially recommend ByteDance’s supply chain.

Source: Chen Ming’s Strategic Deep Thinking

Risk Warning and Disclaimer

Market risks exist; investments should be cautious. This does not constitute personal investment advice, nor does it consider individual user’s specific goals, financial situation, or needs. Users should evaluate whether the opinions, views, or conclusions herein are suitable for their circumstances. Investment based on this information is at their own risk.