Dot-Com Bubble
When "eyeballs" mattered more than earnings
Peak Value
NASDAQ: 5,048
Crash Value
NASDAQ: 1,114
Duration
31 months
Overview
The dot-com bubble (1995-2000) was one of the most spectacular speculative episodes in market history. Internet-related companies saw valuations soar to extraordinary heights, driven by the revolutionary potential of the World Wide Web. Companies with no profits, minimal revenues, and sometimes no viable business models achieved market capitalizations in the billions. The NASDAQ Composite Index rose from under 1,000 in 1995 to over 5,000 by March 2000—a gain of more than 400% in five years. The subsequent crash wiped out $5 trillion in market value by October 2002.
Timeline
**1995-1996: Stealth Phase** - Netscape IPO signals mainstream internet arrival - Early adopters build web infrastructure - Venture capital begins flowing to internet startups **1997-1998: Awareness Phase** - Amazon, Yahoo, eBay gain mainstream attention - Media coverage increases dramatically - Traditional companies scramble for "internet strategies" **1999-March 2000: Mania Phase** - Pets.com, Webvan, and hundreds of dot-coms go public - Day trading becomes a national phenomenon - Super Bowl ads dominated by dot-coms **March-December 2000: Crash Begins** - NASDAQ peaks at 5,048 on March 10, 2000 - Tech stocks begin sustained decline - Dot-coms start running out of cash **2001-2002: Aftermath** - Hundreds of companies go bankrupt - Major accounting scandals (Enron, WorldCom) - NASDAQ bottoms at 1,114 in October 2002
The Narrative
The internet was going to change everything. Every business would need to be online or die. Traditional valuation metrics like price-to-earnings ratios were dismissed as relics of the "old economy." What mattered now was growth, eyeballs, mindshare, and first-mover advantage. Companies were valued on "price per click" or "price per user" rather than profits. The logic went: capture users first, monetization would follow. In many cases, it never did.
Warning Signs
- IPOs with no revenue trading at billion-dollar valuations
- Day traders quitting jobs to trade full-time
- Traditional value metrics openly mocked
- CEOs on magazine covers as celebrities
- Elaborate Super Bowl advertisements by unprofitable companies
- Analysts using "new metrics" to justify valuations
- Widespread belief that stocks only go up
Who Benefited
**Winners:** - Early investors who sold before the crash - Investment banks collecting IPO fees - Founders who cashed out stock - Advertisers during the mania **Long-term Winners:** - Amazon (survived and dominated) - eBay, Priceline, and other survivors - Infrastructure companies (Cisco, Oracle)
Who Lost
**Retail Investors:** Millions lost savings in worthless dot-com stocks **Day Traders:** Many lost everything trying to trade the volatile market **Employees:** Stock options became worthless; many lost jobs **Late-stage VC:** Investments in late 1999-2000 often went to zero
Lessons Learned
1. Valuation eventually matters—companies need sustainable business models 2. Narratives can contain truth while still leading to unsustainable prices 3. The "survivors" often become the next decade's leaders 4. IPO markets are often indicators of excessive speculation 5. When everyone is talking about stocks, the bubble is likely advanced
AI/ML companies today echo many dot-com dynamics: revolutionary technology, companies valued on potential rather than profits, and widespread belief that "this time is different." However, today's tech leaders have actual revenues and profits, suggesting more selectivity.