stock market: Stumbling stock market raises spectre of dot-com era reckoning

A revolutionary new technology comes along and infatuates investors with its seemingly limitless possibilities. Euphoria sparks a stock market rally. Eventually things get overheated and share prices become ridiculous. Then it all collapses.

Sound familiar?

It happened exactly 25 years ago when the roughly five-year dot-com bubble popped, leaving trillions of dollars of investment losses in its wake. On March 24, 2000, the S&P 500 Index posted a record level it wouldn’t see again until 2007. Three days later, the tech-heavy Nasdaq 100 Index also closed at an all-time high, the last time it would do that for more than 15 years.

Those peaks marked the end of an electric run that started with the blowout initial public offering for Netscape Communications Corp, which started trading in August 1995. Between then and March 2000, the S&P 500 would almost triple, while the Nasdaq 100 soared 718%. And then it ended. By October 2002, more than 80% of the Nasdaq’s value was gone, and the S&P 500 was essentially cut in half.

Echoes of that era are reverberating now. The technology this time is artificial intelligence. After a wild stock market rally that sent the S&P 500 soaring 72% from its trough in October 2022 to its peak last month, adding more than $22 trillion of market value in the process, signs of trouble are emerging. Stocks are starting to sink, with the Nasdaq 100 losing more than 10% to fall into a correction and S&P 500 briefly dropping to that level. And the symmetry is raising frightening memories from a quarter century ago.

“Investors have two emotions: fear and greed,” said Vinod Khosla, billionaire venture capitalist and co-founder of Khosla Ventures, who was a key rainmaker during the internet boom and remains one today. “I think we’ve moved from fear to greed. When you get greed, you get I would say indiscriminate valuations.”Difference Of DegreesThe main difference between the dot-com and AI eras, however, is degrees. The most recent boom has been eye-popping, but it pales in comparison to the extremes of the internet bubble.

“The internet was such a big idea, had such a transformative impact on society, on business, on the world, that those who played it safe generally got left behind,” said Steve Case, the former chairman and CEO of AOL. “That leads to this kind of focus on massive investments to make sure you’re not left behind, some of which will work, many of which won’t work.”