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Dot-com bubble and bust (2000)
1995–2002· Crisis or event
Fact, law or dataA rule, statute, definition or measured number.
A late-1990s mania for internet stocks that sent the Nasdaq up about fivefold, then down 78% by 2002.
See it on the Money & Finance map →How it works
After Netscape's 1995 IPO, investors rushed into companies with '.com' in their names, many with no profits. Venture money and IPOs flowed, and day trading became a national hobby. The Nasdaq peaked at 5,048 on March 10, 2000, then fell 78% by October 2002 as cash ran out and the Fed raised rates. Pets.com and Webvan failed; Amazon fell over 90% but survived. A mild recession came in 2001, and frauds at Enron and WorldCom followed.
Why it matters
It showed that a real, world-changing technology can still be a bad investment at the wrong price, and the accounting frauds exposed in the bust led to the 2002 Sarbanes–Oxley rules.
Think of it like
Like paying record prices for land because 'they're not making any more of it', while ignoring the rent it can actually earn.
Facts, rules and data
Nasdaq index records, IPO data compiled by Jay Ritter, SEC filings, and Robert Shiller's book 'Irrational Exuberance', published in March 2000, at the peak.
Debates and risks
Whether the bubble was pure folly or a wasteful but useful way to fund the internet's buildout, such as fiber networks, is debated.
Connections (4)
▸Alan Greenspan, Fed chair 1987–2006 warned of 'irrational exuberance' before Dot-com bubble and bust (2000)Fact, law or data
The connection
In a December 1996 speech, Greenspan asked how one could know when 'irrational exuberance' had unduly inflated asset prices. Markets dipped, then soared for three more years. He declined to raise rates to deflate stocks, arguing bubbles are hard to spot in advance; the Fed did hike to 6.5% in 1999–2000.
When and why
American Enterprise Institute dinner, Washington, December 5, 1996; the Nasdaq peaked on March 10, 2000.
How we know
The speech text is on the Fed's website; stock markets in Tokyo and Europe fell sharply the next day.
Debates and risks
Whether central banks should lean against asset bubbles with rates, or clean up after they burst, as Greenspan argued, remains debated.
▸Dot-com bubble and bust (2000) was fueled by a frenzy of Initial public offerings (IPOs)Fact, law or data
The connection
IPOs turned internet hype into cash. Nearly 500 companies went public in 1999, many without profits, and first-day gains averaged about 70%. Each pop drew more investors and more listings, until the Nasdaq broke in 2000 and the IPO window slammed shut.
When and why
US markets, from Netscape's August 1995 debut to the 1999–2000 peak in listings.
How we know
Jay Ritter's IPO database records the counts and first-day returns; a 2003 SEC settlement with big banks documented biased analyst research.
Debates and risks
Whether huge first-day pops reflected banks rewarding favored clients with hot shares or plain investor frenzy is debated.
▸The AI stock boom and Big Tech concentration is often compared to Dot-com bubble and bust (2000)Experts disagree
The connection
Both booms rest on a world-changing technology, heavy capital spending and a few stocks driving the index. Bulls note today's leaders earn huge profits and trade at lower multiples than 2000's stars, some of which traded above 100 times earnings; bears point to soaring data-center spending, circular deals and record concentration.
When and why
Compared constantly since ChatGPT's November 2022 launch; by 2025 the ten largest companies made up nearly 40% of the S&P 500, above the 2000 share.
How solid is the link?
Index concentration and valuation data from S&P and others; this is an analogy between eras, not a causal link.
Debates and risks
No one knows whether AI profits will justify the spending; bubbles are usually recognized only after they burst.
▸Venture capital poured money into Dot-com bubble and bust (2000)Fact, law or data
The connection
VC funds raised record sums and poured them into internet startups, often pushing them to grow fast and go public quickly so the funds could cash out. US venture investment rose more than tenfold from 1995 to about $100 billion in 2000, then crashed with the Nasdaq.
When and why
Mainly Silicon Valley's Sand Hill Road and other US tech hubs, 1995–2000.
How we know
NVCA and PwC MoneyTree data show the surge and collapse; funds raised in 1999–2000 had some of the worst returns in VC history.
Debates and risks
Whether VC money inflated the bubble or simply followed public investors' appetite for IPOs is debated.