A revolutionary new technology has emerged, attracting investors with its seemingly limitless possibilities, and the frenzy has driven the stock market up, but ultimately the market became overheated, stock prices absurdly high, and then everything collapsed.
Does this sound familiar?
This is exactly what happened 25 years ago. At that time, the internet bubble, which lasted about five years, burst, resulting in trillions of dollars in investment losses. On March 24, 2000, the S&amp;P 500 reached an all-time high, a level it would not reach again until 2007. On March 27, 2000, the tech-heavy NASDAQ 100 also closed at a historic high, marking the last time it would reach that level in the following 15 years.
The peaks reached by the S&amp;P 500 and NASDAQ 100 at that time marked the end of a frenzy. This frenzy began in August 1995 with the explosive initial public offering (IPO) of Netscape Communications Corp. From then until March 2000, the S&amp;P 500 nearly tripled, while the NASDAQ 100 soared by 718%. Then, the bubble burst. By October 2002, the market value of NASDAQ had evaporated by over 80%, and the S&amp;P 500 had nearly halved.
The echoes of that period seem to be resonating again. The core of this tech boom is artificial intelligence (AI). After a frenzied stock market surge, the S&amp;P 500 skyrocketed 72% from its low in October 2022, peaking last month, with a total market value increase of over $22 trillion. However, dangerous signals have begun to emerge. The stock market is declining, with the NASDAQ 100 down over 10%, entering correction territory; the S&amp;P 500 also briefly approached this level. This symmetry inevitably recalls the bursting of the internet bubble 25 years ago.
Billionaire venture capitalist and co-founder of Khosla Ventures, Vinod Khosla, stated, &#34;Investors have only two emotions, fear and greed. I think we have shifted from fear to greed. When the market is dominated by greed, indiscriminate valuations occur.&#34;
The Extremity of the Internet Bubble Was Even Greater
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However, the main difference between the internet era and the AI era lies in the degree. Although this AI boom is astonishing, it still pales in comparison to the extremity of the internet bubble. Steve Case, former chairman and CEO of AOL, stated, &#34;The internet is a huge concept that has had a transformative impact on society, business, and the entire world. Those who were too cautious ultimately got left behind. This led to a wave of massive investments to ensure they wouldn't fall behind, some of which would succeed, but more likely would not.&#34;
Steve Case is no stranger to failed tech investments. In January 2000, at the peak of the AOL stock bubble, he pushed for the acquisition of Time Warner, which became a hallmark event of the internet bubble. However, this deal quickly turned into a disaster, as the seemingly reasonable merger on paper did not work out in reality, a fact that Steve Case himself acknowledged. The stock price of the merged company plummeted, profitability worsened, and ultimately it was split up in 2009.
This is exactly what Wall Street is worried about now. Nobel laureate and MIT economist Daron Acemoglu stated, &#34;Back then, the internet generated a lot of hype, and this hype far preceded the establishment of profitable business models. This is why the internet bubble eventually burst.&#34;
The companies participating in this round of the AI boom are vastly different from the internet companies of the past. The internet bubble was largely driven by unprofitable startups, some of which could go public simply by adding &#34;.com&#34; to their company names. In contrast, the core of the AI boom consists of a few of the world's most profitable and financially stable tech giants, such as Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia.
This year alone, Alphabet, Amazon, Meta, and Microsoft are expected to invest a total of $300 billion in capital expenditures in the AI field. Nevertheless, they still anticipate generating $234 billion in free cash flow. In comparison, companies during the internet bubble had little such capital backing, with funds directed more towards unprofitable startups.
Ken Fisher, chairman of Fisher Investments and billionaire investor, stated, &#34;In 2000, among the top 200 companies by market capitalization, there were a large number of companies that were burning cash. The reason the bubble became a bubble was that these companies generally had a severe cash burn rate. The market at that time thought these companies were great and believed in the myth that 'this time is different.'&#34;
The differences between the companies driving market optimism can be difficult to compare across traditional valuation metrics like price-to-earnings (P/E) ratios. In 1999, the NASDAQ Composite Index had a P/E ratio of 90, while it is currently around 35.
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As of March 2000, at least 13 companies in the NASDAQ 100 Index had been burning cash over the past year, including Amazon, XO, Dish, Ciena, Nextel, PeopleSoft, and Inktomi. In fact, during the internet bubble, traditional valuation methods became nearly ineffective as many popular companies were not profitable at all
Therefore, Wall Street even created new valuation metrics, such as &#34;mouse clicks&#34; and &#34;traffic,&#34; to measure a company's growth without involving profitability. All of this may seem crazy now, but at the time, investors didn't care because they were betting on the limitless growth prospects of the internet, and stock prices were indeed rising continuously.
However, ultimately, multiple factors led to the bursting of the internet bubble. The Federal Reserve began to raise interest rates significantly to curb the excessive prosperity of the stock market. At the same time, Japan fell into recession, raising concerns about a global economic slowdown. The market turned at high levels, and skepticism began to grow towards companies that were not profitable.
Jim Grant, founder of Grant's Interest Rate Observer, stated, &#34;They were right about the business prospects of the internet. But they were wrong to be willing to pay a market value of 10 times revenue for Sun Microsystems, ultimately losing 95% of their funds.&#34;
In Jim Grant's view, many of today's corporate giants—Alphabet, Meta, Apple, Microsoft—were built on or developed under the impetus of the internet boom. Rob Arnott, founder and chairman of Research Affiliates, said, &#34;This happened gradually, meaning people began to embrace the internet. Humans are creatures of habit, and for most of us, embracing the internet was a gradual process. Today, we use the internet for everything. But in 2000, that was not the case.&#34;
However, this does not lessen the pain caused by the $5 trillion internet bubble burst. In many ways, the internet proved to be the right investment, but it happened at the wrong time.
AI Dreams
Today, investors face the risk that a similar scenario may play out again. AI brings limitless possibilities: intelligent assistants are everywhere, managing our traffic, educating our children, providing medical services, creating entertainment content, and even handling daily chores.
All these visions may come to fruition. But the true winners of the tech bubble often do not emerge immediately. The biggest beneficiaries may not yet have been born, which is an important lesson taught by the internet bubble.
Just a few months ago, the &#34;high performance + low cost&#34; large model launched by China's DeepSeek made the market aware of this risk, leading to a single-day drop of $589 billion in Nvidia's market value—investors worried that cheaper AI models might weaken demand for Nvidia's computing hardware.
This serves as a stark reminder that the dominance of leaders in the AI industry is far from certain. It also explains why tech giants are willing to invest heavily in AI, even if it affects profit margins. But the key is that they must always stay ahead in a rapidly evolving industry

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The turbulence in the US stock market has raised concerns among investors, with the current AI boom resembling the internet bubble 25 years ago. Tech stocks have experienced a dramatic surge, with the S&P 500 rising 72% since October 2022, but market signals have begun to deteriorate, and the NASDAQ 100 index has fallen by more than 10%. Billionaire venture capitalist Vinod Khosla pointed out that the market sentiment has shifted from fear to greed, which could lead to irrational valuations

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The turbulence in the US stock market has raised concerns among investors, but this wave of AI frenzy is different from the last internet bubble?