Why the Dotcom Bubble Should Still Warn Investors Today

November 20, 2025, sent a clear warning shot through the markets: The Nasdaq Composite plummeted more than 2% in a single day, with CNN Business’s Fear & Greed Index dropping to a crisis-level low of 7 points. Everywhere in the media, there was talk of the “bursting of the AI bubble.” But before investors panic, it’s worth looking back at one of the most instructive market catastrophes in modern history: the .com bubble of the late 1990s.

The parallels are astonishing—and the lessons are timeless.

The Origin: When the Internet Conquered the World

It all started innocently enough. In the mid-1990s, the Internet transformed from a niche technical phenomenon into an everyday reality. PCs became more affordable, dial-up connections enabled millions of households to access the Internet, and suddenly companies worldwide recognized: a completely new market was opening.

This euphoria met an ideal breeding ground: Silicon Valley in a gold rush. Venture capitalists competed to pour money into even the most questionable startups. The idea was simple: who wouldn’t want to miss the next Amazon? A vicious cycle emerged—more capital flowed, more founders flocked in, and the pressure on investors to outdo the competition intensified.

Valuation logic abandoned reason early on.

The Euphoria: 1998 to 1999—When Numbers Became Meaningless

From 1998 onward, enthusiasm turned into pure speculation. The Nasdaq soared vertically as a flood of tech and Internet companies went public. IPO prices doubled or tripled on the first trading day. To ordinary investors, it seemed like a guarantee of quick riches.

The problematic part: fundamentals no longer mattered. Companies with no significant revenue, no profits, and sometimes no clear business model achieved billion-dollar valuations. All it took was to add a “.com” behind the name, and the stock price skyrocketed. An online portal with visitor numbers was treated like an established, profitable company.

Traditional metrics like the price-earnings ratio? Obsolete relics from an analog era, they said. Instead, terms like “website traffic,” “user acquisition,” and “scalability” dominated—metrics that reflected the illusion of future profits rather than actual current profitability.

The media amplified this madness daily. CNBC celebrated 24/7 stories of students becoming multimillionaires overnight. Day trading became a national obsession. People abandoned conservative diversification principles and concentrated their savings in speculative tech stocks.

Momentum and emotion completely replaced rational investment strategies.

The Turning Point: The First Reality Check

The first cracks appeared in late 1999. The Dotcom Bubble reached its extreme just as the Federal Reserve began raising interest rates—a cold shower for companies dependent on continuous capital inflows to finance their losses.

Meanwhile, established tech firms released disappointing figures. Even industry leaders couldn’t escape declining demand. These reports shattered the aura of inevitability that had surrounded the sector.

The fundamental problem was elementary: many of these companies burned capital at an alarming rate. Their business models required perpetual growth, constant investments in marketing and infrastructure. Profitability? Not in sight. Quarterly reports showed rising losses—but instead of warning, these were interpreted as evidence of “hypergrowth.”

Investors convinced themselves that the old economic rules no longer applied. A dangerous belief.

The Burst: 2000 to 2002 as a Cautionary Tale

In March 2000, the Nasdaq hit its peak. Then? A collapse of biblical proportions.

Over the next two years, the index lost nearly 78% of its value. Companies that embodied limitless hope became penny stocks—or disappeared altogether. Thousands of startups went bankrupt. Silicon Valley offices emptied. Trillions in market capitalization evaporated.

The most famous example: Cisco Systems. At the height of speculation, Cisco was briefly the most valuable company in the world. After 2000, its stock fell so drastically that the record high of $82 during the bubble remained unmatched more than 25 years later—still on December 1, 2025. Cisco survived, remained a key player in the tech sector, but this episode shows: even the strongest companies were catastrophically overvalued back then.

Tens of thousands of workers lost their jobs. Small investors who had entered at the peak of euphoria saw their savings evaporate. An entire generation of investors learned a hard lesson: no technology is too transformative to escape valuation gravity.

But not all was lost. Amazon and eBay survived because they adapted their business models, pursued operational efficiency, and focused on long-term profitability rather than mere growth. A lesson that still holds today: bubbles burst, but genuine innovation endures.

The Uncomfortable Truth: “This Time Is Different”

Today, we hear the same words in connection with AI. “Yes, but this time, it’s different”—a phrase that helped justify the Dotcom Bubble.

The parallels are clear: AI is transforming industries, driving unprecedented demand for computing capacity, and markets are rewarding the sector with astronomical valuations. The pace and scale are frighteningly reminiscent of the late 1990s, when the Internet was heralded as a world-changing force.

The critical question remains unanswered: how much of today’s AI valuations reflect real long-term value, and how much is speculative irrationality?

The biggest current comparison: Nvidia. Is Nvidia the new Cisco? Both dominated their respective tech waves, controlled critical infrastructure segments, and faced irrational growth forecasts. But there are crucial differences: unlike Cisco at the height of euphoria, Nvidia today generates massive cash flows, has genuine pricing power, and benefits from real, realizable demand for its products.

But—and this is key: if market expectations shift from achievable long-term profits to pure speculation, even strong fundamentals can be overwhelmed.

The Timeless Lessons

What the Dotcom Bubble teaches applies to AI, Bitcoin, or any other speculative hype: Cash flow is king. Sustainable operational efficiency is crucial. Practical utility beats storytelling.

Markets may reward companies temporarily for explosive user growth or visionary narratives. But real, lasting value only comes from companies that turn innovations into repeatable, profitable results.

Yet: human psychology does not learn. FOMO, herd behavior, narrative biases—they repeatedly push asset prices beyond rational limits. History does not repeat, but it rhymes.

What Matters Today

The Dotcom era shows: speculative bubbles are inevitable. But those who survive the investment are the ones who adhere to these principles:

• Real cash flows instead of marketing myths
• Operational efficiency over mere growth
• Resilient business models not dependent on perpetual capital inflow
• Valuations still reasonably connected to realizable profits

The coming period will reveal whether today Nvidia or Amazon is the next generation—or if we will experience a new wave of Cisco-like overvaluations. One thing is certain: the .com bubble remains the most influential textbook for anyone wanting to understand how speculative mania arises—and how real the consequences can be.