The dot-com boom, which began in the mid-1990s, laid the foundation for the modern cable world. When the Internet craze turned into a bust in the spring of 2000, it led to some chaos. The problem spread from Silicon Valley to the larger economy, which fell into recession, The New York Times wrote in its analytical material. There was a deficit of more than 5 trillion USD in the stock market, and unemployment rose from 4% to 6%. The recovery took several years.
Today, Silicon Valley is in the midst of an artificial intelligence boom. There are a few similarities with the dot-com boom.
1. The rhetoric is almost the same.
2. Certain people, even those from the dot-com era, are making quite a fortune.
3. Companies that didn't even exist yesterday are being highly valued.
However, there are many differences. The main one is that AI is funded and controlled by multi-trillion dollar companies like Microsoft, Google, and Meta, which are in no danger of going bankrupt, unlike dot-com startups, which were little more than an idea and a group of engineers. Amazon is spending billions on AI data centers, and Google is developing fundamental AI models.
The Internet was a new platform in the 1990s. It took time for people to embrace the idea of being online and for technologies like broadband to be introduced that would allow them to thrive there. Many business leaders, by contrast, are eager to get on board with AI as soon as possible.
Another difference between then and now: Relatively few regulatory barriers stand in the way of AI. The Trump administration is doing everything it can to ensure a future for artificial intelligence. The Clinton administration’s big tech move in the 1990s was the lawsuit against Microsoft.
The dot-com boom and the AI boom were narrowly focused. Nearly 80% of venture capital in 2000 went to Internet companies. This year, 64% went to AI startups. The technical term for this is “putting all your eggs in one basket.”
But the two booms differed in scale. The three most valuable companies of the dot-com era were Cisco, Microsoft, and Intel, all of which provided the technology that made internet startups possible. Each was valued at about $500 billion at its peak.
Today, Nvidia, the chipmaker that played a similar role in the AI boom, is valued at more than $4.5 trillion. It and other AI companies like Amazon, Google, Meta, and the privately held OpenAI are worth more than the $17 trillion market cap of the entire stock market in 2000. This difference in scale is both alarming and – conversely – comforting. The wealth and power of these AI companiesis part of the reason why Jerome H. Powell, the Federal Reserve chairman, sees no reason to worry. These companies “actually have business models, profits and things like that,” he said in October. “So this is really a different thing” from the dot-com bubble.
To a large extent, the dot-com boom was a revolution from below. People from all over the country packed their bags and headed to San Francisco, hoping to strike it big, just as they had during the original gold rush 150 years earlier. More than 2,200 dot-com companies went public between 1996 and 2001. That seemed like a lot at the time.
In contrast,artificial intelligence is a less populist phenomenon. OpenAI, Google, Meta, and Microsoft have engaged in a well-documented bidding war for talent, but those without expertise have little chance. There are 972,000 companies with .ai domain names, though it’s unclear how many of them are viable businesses.