In 1999, pets.com had raised over $80 million at its IPO despite having no real business model. Today we are seeing similar hype surrounding AI, with companies like Mira Murati’s start-up raising billions before even releasing a product. Is AI destined to follow the dot-com bubble’s path, or is this time different?
At first glance, the parallels between the two eras are hard to ignore. The intensely high stock valuations and the growing hype surrounding AI are at a peak. In recent years, anything AI-related, such as the Magnificent Seven’s stocks, which are partially driving the AI boom, and various AI start-ups, have taken the central stage for many investors. For instance, Mira Murati’s, OpenAI’s ex-CTO’s, new start-up, which, despite having only a few employees and no product, has raised $2 billion and is valued at $10 billion. This is reminiscent of the dot-com bubble when many companies had inflated stock prices but no proven business models, although not entirely, as Murati is already a well-established engineer and researcher, likely with more experience and a better idea of a business than the founders of start-ups during the dot-com era.
This leads to an essential question: Are these AI-related companies just overvalued, as seen with internet-based companies in the late 1990s and early 2000s? Take Nvidia, for example. Some argue that investors have long overvalued Nvidia because of its involvement in AI development. This belief was partially justified when Deepseek, China’s new AI model, sank Nvidia’s stock. This sudden drop highlighted how sensitive the market is to competition and how quickly hype can shift.
While many parallels can be drawn, there are still notable differences that suggest investing in AI is much less likely to follow the same fate as the dot-com companies, such as pets.com. The main difference is that the current tech companies dealing with AI are in a much stronger position than they were in the past, making it less likely that they will experience such a dramatic crash as was seen during the 2000s. Unlike the dot-com companies, which often had little more than an idea and an inflated stock price, AI-related companies like Nvidia and Google have established solid business models and robust revenue streams, making them less vulnerable to the kind of collapse that happened during the dot-com era. Not only that, these companies are already very successful, meaning that, even if there is some level of decline in AI hype, the companies will continue to exist.
Nvidia, for instance, is a dominant player in the GPU market, which powers not only AI development but also gaming, editing, and complex computing, creating a diversified and sustainable revenue base. Furthermore, many AI companies are already profitable or have strong profit potential due to the role AI plays in various industries. With AI proving to increase productivity and streamline many operations for companies in various industries, over the years it has shown itself to be more than just a trend.
So, is AI the next dot-com bubble? Most likely not. AI development is largely based on solid research, and the field is dominated by well-established companies. Even though there may be a risk of overvaluation within the AI space, the nature of companies who are working within the AI sphere makes a complete crash unlikely, because, unlike in the dot-com era, many of them have diversified revenue streams. Though there is still room for discussion, as many experts have varying opinions regarding AI and whether it will eventually crash just like dot-com companies in the 2000s.
– Liva Lipace