As the stock market continues to reach record levels despite a number of economic headwinds, I can’t help but think back to a framework offered by Carlota Perez known as the Perez Technological Surge, first introduced to me by Fred Wilson. Perez studied all of the technological revolutions of the past and found that there are two phases in every major technological revolution: the installation phase and the deployment phase. The installation phase is when the technology comes to market and is often coupled with a big boom as investments pour into the hot new thing, followed by the deployment phase, where all kinds of applications are built on top of the underlying technology that actually delivers on its promise. But between the two phases, there’s a turning point that leads to a substantial crash in capital markets associated with the technology as the hype and capital inevitably get ahead of the practical use of the technology.

I started my career almost right in the middle of the turning point of the internet’s deployment and installation. Everyone knew what the internet was, and the world was enormously excited about it. The cables had been laid in the ground, broadband was widely available, and the NASDAQ was at its all-time high as capital poured into unprofitable and pre-revenue internet companies. I had recently graduated from college and was living in San Francisco when the turning point hit: markets crashed, we felt lots of pain, and then we moved to the deployment phase where all kinds of applications that we never could’ve imagined and, in many ways, changed our lives were built on top of the rails of the internet (Uber, Airbnb, Netflix, Zoom, etc.).

The most interesting thing about the deployment phase is how many applications and businesses you never would’ve imagined or associated with the technology get built on top of the technology. Perhaps the best example of this is the automobile. With the deployment of the automobile came the typical hype and over-investment and then a long and fruitful installation phase where an enormous number of applications were built thanks to human creativity and ingenuity. Consider Walmart, which at one time was the largest US company. Walmart was an output of the deployment phase of the automobile. Without the automobile highways couldn’t have existed and without highways suburbs couldn’t have existed and without suburbs Walmart and large shopping centers couldn’t have existed. Surely, Henry Ford wouldn’t take credit for inventing Walmart, but perhaps he should have.

Coming back to present day, the stock market continues to thrive through all kinds of headwinds and setbacks and I can’t help but think much of this is still the exhaust of the technological deployment of the internet that may be more impactful than any other technological revolution in world history, especially given its size, speed and global nature.

And, of course, now the internet has led to things like crypto and artificial intelligence, which are going through their own Technological Surge.

So when we look at unemployment and inflation and productivity metrics to try to figure out what’s going in capital markets, it’s important to consider the backdrop and the larger context and the size and scale of the technological revolution and the deployment of the internet that we’re still experiencing. It’s hard to know whether we’re still in the deployment phase of the internet or if we’re in the installation stages of another revolution with artificial intelligence. Or both. When investing in technology markets, it’s crucial to have a sense of the cycles we’re living through and what phase we’re in. The Technological Surge Cycle is a very helpful framework to help do just that.