From the .com Bubble to AI Frenzy: Will History Repeat Itself?

When the market experienced a sharp decline on November 20, 2025, this scene felt all too familiar. The Nasdaq Composite Index dropped over 2% in a single day, closing at 22,078.05 points, nearly 8% below its three-week-old all-time high. CNN’s Fear & Greed Index fell to just 7 points, reflecting an “extreme fear” sentiment. The media once again hyped the “AI bubble” topic, prompting many investors to wonder: Are we replaying the internet boom and bust story from 25 years ago that reshaped the financial markets?

The Dot-com Mania: From Hope to Despair

In the mid-1990s, the internet moved from the technological fringe into mainstream life. As personal computer prices fell and dial-up networks became widespread, millions of households went online for the first time. Companies also sensed opportunity—the internet seemed capable of fundamentally transforming sales, marketing, and customer engagement. This optimism attracted massive venture capital into Silicon Valley. Investors frantically competed, fearing to miss out on the next Amazon or Yahoo. The abundance of capital, in turn, drew more entrepreneurs, creating a self-reinforcing cycle.

By 1998, excitement had turned into madness. The Nasdaq index soared nearly vertically, with many internet and tech companies rushing to go public. IPO stocks often doubled or tripled on their first trading day. For retail investors, it seemed like a quick path to wealth; for entrepreneurs, it was a way to raise huge sums with minimal scrutiny.

Valuation logic of that era had been completely distorted. Companies with no revenue, no profit, and even no clear business model achieved market caps in the billions of dollars. Simply adding “.com” to a company name could send its stock price soaring overnight. Traditional financial metrics were discarded, replaced by illusory indicators like website traffic and user numbers, creating the illusion of “unlimited future profits.”

The Three Drivers of the Bubble Expansion

Media Fueling the Fire

CNBC, business magazines, and newspapers eagerly reported stories of young entrepreneurs becoming millionaires overnight. The myth of “getting rich quick” spread, convincing ordinary people they could also get a piece of the pie.

Retail Investor Frenzy

Day trading became a nationwide obsession. More and more people opened online brokerage accounts, abandoning diversification principles and concentrating their funds in speculative tech stocks. The market shifted from long-term investing to emotion-driven high-frequency trading.

Self-Reinforcing Capital

Liquidity flood led to a vicious cycle: more capital entering → more entrepreneurs emerging → investors fearing to fall behind → continued blind followership. This momentum ultimately drove the market to unsustainable heights.

The Ulcer Behind the Boom

By the end of 1999, signs of excess were everywhere. Tech stock P/E ratios reached historic highs, with many companies needing decades of growth—even under optimistic forecasts—to justify their valuations. Yet investors believed “the old rules are dead,” and the internet would create countless new markets out of thin air.

Risks were equally obvious: many “.com” companies burned cash at astonishing rates. They needed continuous capital to acquire users, build infrastructure, and advertise. Quarterly earnings reports showed losses widening, but analysts interpreted this as “hyper-growth.” Investors deluded themselves into believing that market dominance would naturally lead to profits.

This mindset reinforced a dangerous assumption: internet businesses were not bound by fundamental economic laws. Concepts like marginal profit, cost discipline, and free cash flow were discarded, replaced by intangible metrics like “brand awareness” and “attention,” creating a false sense of “limitless future earnings.”

The Turning Point: When Reality Shattered Illusions

In early 2000, the macro environment changed dramatically. The Federal Reserve began raising interest rates to curb overheating, increasing financing costs. Unprofitable tech companies faced mounting difficulties in raising funds. Meanwhile, established tech giants released disappointing earnings reports, showing that even industry leaders could not withstand declining demand and operational challenges.

This shattered the “unstoppable” aura that had enveloped the industry. Investors reevaluated expectations, and sentiment quickly shifted from euphoria to skepticism. Overvalued stock prices, deteriorating fundamentals, tightening liquidity, and disappointing earnings created perfect conditions for the bubble to burst.

The Crash: The Disaster of 2000-2002

The collapse of the dot-com bubble was as swift and dramatic as its rise. Starting from the peak in March 2000, the Nasdaq plunged sharply and sustained a prolonged decline, losing nearly 78% over two years. Companies once symbolizing internet’s limitless potential saw their market values evaporate within months. Panic, worsening financial conditions, and the realization that many firms were years—or perhaps forever—away from profitability fueled relentless selling.

The most iconic case was Cisco Systems. At the peak, it was the most valuable company globally, with a stock price of $82. However, after 2000, its share price fell so sharply that that all-time high was not surpassed until December 2025. Although Cisco survived and maintained its importance in the tech industry, this history clearly showed that even the strongest companies of that era had been severely overvalued.

The scope of the crash extended far beyond large corporations. Thousands of startups went bankrupt due to lack of funding. Silicon Valley office buildings sat vacant, and a wave of layoffs followed the collapse. The total market value lost was in the trillions of dollars, destroying countless retail investors’ savings—most of whom had entered at the peak.

Surprisingly, despite the deepest and fastest collapse in modern economic history for the tech sector, the global economy did not fall into recession. The US economy slowed, but other sectors like real estate, energy, and consumer goods remained relatively stable, buffering the overall impact.

Lessons from the Survivors

Amid the ruins, a few winners emerged. Companies like Amazon and eBay adjusted their business models, focusing on operational efficiency and long-term profitability rather than reckless spending for growth. Their resilience revealed a key lesson: bubbles may burst, but truly transformative technologies survive.

A Mirror of History: Warnings for the AI Era

Today’s AI boom is eerily similar to the dot-com era. Artificial intelligence is reshaping entire industries and fueling soaring valuations in this sector. The market’s rapid rise and scale evoke memories of the late 1990s, when the internet was heralded as a revolutionary force capable of transforming every aspect of the global economy.

In both eras, investors face the same question: how much of this enthusiasm reflects genuine long-term potential, and how much is a speculative bubble?

The most familiar and dangerous refrain is: “This time is different.” During the dot-com bubble, this phrase was used to justify astronomical valuations, claiming the internet’s impact was too revolutionary to be measured by traditional metrics. Today, the same argument appears in the AI space, asserting that exponential growth in model performance and data generation makes current prices cheap. Innovation may indeed be transformative, but history teaches us that ignoring disciplined valuation methods rarely ends well.

This raises one of the most debated questions in financial markets: Is Nvidia the next Cisco? Both companies dominate their respective technological waves, control critical infrastructure layers, and face sky-high investor growth expectations.

However, Nvidia differs in several key aspects. Unlike many dot-com darlings—and even Cisco at its peak—Nvidia currently generates substantial cash flow, has pricing power, and benefits from real demand for its products. But if expectations diverge from achievable long-term returns, even strong fundamentals can be overshadowed by excessive speculation.

Timeless Principles

Ultimately, the lessons remain consistent. Cash flow, sustainability, operational efficiency, and real utility matter far more than narratives and short-term momentum. Markets may reward companies in the short term for rapid user growth or grand visions, but true value comes from those that turn innovation into repeatable, profitable results.

Yet, investor psychology has hardly changed. Fear of missing out (FOMO), herd behavior, and narrative bias repeatedly push asset prices beyond rational bounds. The dot-com bubble remains a classic example for understanding modern speculative frenzies—and a sobering warning: even world-changing technologies undergo corrections when expectations outpace reality.