Real technology, unreal prices. A new industry’s genuine promise, priced decades ahead of any business model that could deliver it.
The dot-com bubble wasn’t built on a fake technology. The internet was, and is, genuinely transformative. What inflated the bubble was pricing that transformation as though it had already happened — investors bidding up companies with no revenue, no path to profit, and in some cases no functioning product, on the belief that being early to “the internet” was itself the investment thesis.
Eli Ofek and Matthew Richardson’s 2003 analysis in the Journal of Finance traces the mechanics: short-sale restrictions on internet stocks let optimistic investors dominate pricing while pessimists were structurally unable to bet against them, and the eventual crash tracked closely with lockup expirations that finally let insiders sell — not with any single piece of bad news about the internet itself.
Comparing the AI bubble to this one isn’t just rhetorical pattern-matching — see Peak AI for the broader framework this and the 2008 financial crisis both instantiate.
Source: Ofek, E. & Richardson, M. (2003), “DotCom Mania: The Rise and Fall of Internet Stock Prices,” The Journal of Finance, 58(3), 1113–1138.