The price of major tech stocks plunged when the dot-com bubble burst from early 2000 to late 2002. Valuations of stocks had risen sharply in the two prior years. A recent Bloomberg headline read, “Stumbling Stock Market Raises Specter of Dot-Com Era Reckoning.”
Instead of the prospects of internet companies in 2000, a drop in 2025 would be driven by an overvaluation of AI-based business. Bloomberg reports, “The risk for investors today is that scenario could be playing out again. AI inspires dreams of computerized personal assistants intertwined in every facet of our lives.”
Backing up that risk is the huge sums tech companies are spending to increase their artificial intelligence footprints. Meta recently said it would spend $50 billion on AI expansion. Microsoft has put its plan at $80 billion. OpenAI is about to close a $40 investment round that would put the value of the company at $300 billion. In September, that valuation was $150 billion. In early January 2023, it was $29 billion.
It is entirely unclear whether massive new AI data centers, driven mostly by Nvidia chips, will be necessary. Meta plans to build an AI installation in Mississippi that will cover an area of about 70 football fields. Elon Musk’s xAI has one nearly as large outside Memphis.
These AI server installations may not be necessary. BuiltIn reports that “Companies like Nvidia are developing specialized chips, such as its new ‘superchip,’ which the company claims can perform AI tasks with 25 times less energy while delivering 30 times better performance.”
The dot-com bust drove down the stocks of even the healthiest tech companies. Router giant Cisco lost 80% of its value. Amazon’s stock price fell from $106 to $6.
It took 15 years for the Nasdaq to get back to its March 2000 peak.
Some market experts believe AI-based company valuations are much too high. A market reset depends on what “too high” means.
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