Dotcom Bubble
The dotcom bubble was a rapid rise in U.S. technology stock equity valuations fueled by investments in Internet-based companies during the bull market in the late 1990s. The value of equity markets grew exponentially during this period, with the technology-dominated Nasdaq index rising from under 1,000 to more than 5,000 between the years 1995 and 2000. Things started to change in 2000, and the bubble burst between 2001 and 2002 with equities entering a bear market.The crash that followed saw the Nasdaq index, which rose five-fold between 1995 and 2000, tumble from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on Oct. 4, 2002, a 76.81% fall. By the end of 2001, most dotcom stocks went bust. Even the share prices of blue-chip technology stocks like Cisco, Intel, and Oracle lost more than 80% of their value. It would take 15 years for the Nasdaq to regain its peak, which it did on April 24, 2015.
Definition: The Internet bubble refers to the rapid increase in the valuation of U.S. tech stocks due to investments in internet companies during the late 1990s bull market. During this period, the value of the equity market grew exponentially, particularly the tech-dominated NASDAQ index.
Origin: The origin of the Internet bubble can be traced back to the mid-1990s when the rapid development of internet technology and e-commerce sparked significant investor interest. From 1995 to 2000, the NASDAQ index rose from under 1,000 points to over 5,000 points. However, by 2000, the market began to adjust, and the bubble burst between 2001 and 2002.
Categories and Characteristics: The Internet bubble can be divided into two categories: one is emerging internet companies, most of which were not profitable but had their stock prices significantly inflated due to market expectations of future growth; the other is traditional tech companies like Cisco, Intel, and Oracle, whose stock prices also surged during the bubble. Characteristics of the Internet bubble include: 1. Overly optimistic expectations of internet companies by investors; 2. Many companies lacked actual profitability; 3. Stock prices were severely detached from company fundamentals.
Specific Cases: 1. Pets.com: An online pet supplies retailer founded in 1998. Despite heavy spending on advertising, the company lacked a profitable business model and eventually went bankrupt in 2000. 2. Webvan: An online grocery delivery company founded in 1996. The company invested heavily in expanding its business but ultimately filed for bankruptcy in 2001 due to high operating costs.
Common Questions: 1. Why did the Internet bubble burst? The main reason was the overly high expectations of internet companies, many of which were not profitable, leading to a collapse in investor confidence. 2. What impact did the Internet bubble have on investors? Many investors suffered significant financial losses after the bubble burst, especially those who invested in highly valued internet companies.
