The Nasdaq’s recent decline has raised fears of a sharp unwind in tech stocks following years of AI hype.
It’s drummed up comparisons to the dot-com bubble, which dragged the Nasdaq down 78% when it popped in 2000.
Market pros tell BI there are important lessons from 2000 that investors should think about in 2025.
It’s been 25 years since the dot-com crash, and investors are again navigating concerns of a tech bubble reaching unsustainable levels.
The Nasdaq Composite peaked on March 10, 2000 and the subsequent unwind would last nearly three years, taking the tech-heavy index down 78% at its low in October 2002.
Fast-forward 25 years and investors are wondering whether the advent of artificial intelligence has catapulted markets back into bubble territory.
With the Nasdaq down 13% in the last month, the recent stock sell-off has some investors wondering if this is the beginning of a much longer and more painful correction after years of bullish exuberance. Sound familiar?
Here’s what investors and strategists told Business Insider about some of the hard-learned lessons from the dot-com crash.
Whether you’re looking at the Dutch tulip bubble of the 1630s or the Japanese real estate bubble of the 1980s, all market cycles undergo the same phases that investors should be aware of.
Ted Mortonson, managing director and technology specialist at Baird, told BI those distinct phases include overexuberance, complacency, concern/fear, panic, and capitulation.
Dr. Jean-Paul Rodrigue, Hofstra University
“Until each phase of the cycle is experienced, bottoms cannot occur,” Mortonson said.
Mortonson estimates that the current market cycle is in the concern/fear zone, suggesting that there is more downside ahead.
“We will sell off materially in early April on growth deceleration fears,” Mortonson said, adding that first-quarter earnings results will be riddled with misses and lowered guidance amid ongoing uncertainty around President Donald Trump’s trade policies.
According to Giuseppe Sette, president at Reflexivity, stock valuations should be closely monitored by investors.
The forward price-to-earnings ratio of the S&P 500 peaked at about 24x in 2000. It recently approached those levels but quickly retreated, topping out at about 23x in 2021 and then again earlier this year.
“The dot-com bubble and 2021 together show that 23x-24x forward P/E is as much as the market is able to sustain,” Sette told BI via email. “Every time you see 22.5x P/E, a drawdown is near.”
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While the current stock market isn’t riddled with profitless companies like it was in 2000, it does have its fair share of firms trading at extreme valuations — but it also has significant profits to back up those valuations.
A good example is Nvidia, the poster child of the AI boom. The chip titan has grown its net income by 788% since 2023 and is trading at a slight discount to the S&P 500 despite it being on track to grow its revenue by 75% this year.
While stock market valuations can get out of hand, it’s usually for a good reason.
The internet’s promise proved to be real, and the same will probably be true for artificial intelligence, according to Sette.
“The dot-com bubble was ‘right’ about the promise of tech, only the bubble came 10-15 years too early. Now the tech is actually here,” Sette said. “In a matter of 1.5 years, we had an explosion of AI capabilities, and their progress is only accelerating. Where will AI be in 5 years? How far from AGI? Maybe this time is really different.”
So many dot-com era firms that cashed in on the promise of the World Wide Web ended up going bust, but consider that the big winners of that time — companies like Amazon and eBay — not only survived but are thriving a quarter century later.
According to Brian Belski, chief investment strategist at BMO and the only Wall Street strategist who has consistently published research since the dot-com bubble, the stock market is nowhere close to being in a bubble.
“Just because asset prices go up doesn’t mean it’s a bubble,” Belski told Business Insider.
“It’s early innings. In 1999/2000, we were doing crazy stuff. Like companies were buying other companies with stock, like bad stock.”
That sort of behavior isn’t happening right now despite the AI boom.
The IPO market has been dormant for years and has shown few signs of thawing, another sign the bubble hasn’t yet been inflated.
“In a bubble, everybody makes money,” Belski said.
“Why AI is not a bubble right now? You have to take two steps back and think about this. Are the investment banks making money on this? Are we seeing massive primary or secondary offerings? Are we seeing massive consolidation in M&A activity?”
Belski thinks the word “bubble” is thrown around too often on Wall Street, and it’s had a negative impact on investors’ psyche for years.
“The market has been humbled for much of the last 30 years, and every single time the market goes up, investors say ‘Oh it’s gonna go down! It’s gonna go down.’ That’s massively different than the late 1990s,” Belski said.
