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How is the current AI bubble when compared to the .com bubble in the early 2000's?
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this post was submitted on 16 Jan 2025
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I think you're missing the stock market part of the dot-com bubble which is very similar to AI, and the core part of the collapse.
The dot-com bubble was a speculative bubble on the stock market with companies getting hugely over valued despite not being profitable on the hope they would make bank. Companies were getting huge amounts in venture capital investment, and floating on the markets to huge valuations all based on expected future earnings.
Then companies started collapsing and not being protiable and eventually the stock market in the Internet companies collapsed. But the Internet didn't collapse; lots of startups and companies disappeared but companies with solid business models surived, grew and prospered. Amazon, Google, Ebay etc survived the bubble and dominated their areas.
The AI bubble is very similar in that companies with AI focus are getting over valued despite not being profitable. The drive int he market is the same - people want to get in at the ground floor and are not being discerning in what they invest in. Very similar to the docotm era, people don't yet see exactly how money will be made with AI or which companies will be the ones to triumph. It's all gambling on things people don't really understand. The AI bubble will also pop, but again AI as a technology isn't going anywhere - it is investors who will be harmed and a lot of companies will collapse leaving behind ones that have viable business models.
The dot com bubble burst in March 2000 due to multiple factors - a Microsoft anti trust case loss, the AOL-Time Warner merger being increasingly questioned, and rising interest rates putting pressure on the debt-driven growth of dot-cons.
Looking at AI, it's clear there is speculative valuations going on with lots of AI companies. And established tech companies are all throwing money at AI. Meta - which has been in trouble for a while as it needs to keep growing due to the stock market but Facebook and Instagram have peaked and face more competition - first tried to pivot to VR (that's gone very quiet suddenly!) and suddenly has pivoted to AI. Nvidia has been wildly over valued based on its chips being used in AI and other companies stockpiling them for future AI work. Companies are making expensive moves to stake a claim on future AI market share but at the moment there hasn't been any profitability coming from these tools.
AI will survive, but a lot of companies are very obviously going to get burnt. This feeling was also prevenalt during the dot com era - the difficulty was actually picking the winners not that people didn't know there was a speculative market bubble during the dot com era. People knew it was going to burst just as we know the AI bubble will burst.