Insights from History: The Dot-Com Bubble vs. Today's AI Rally

Ryan Burton

In the midst of AI-related stocks catapulting the S&P 500 into the stratosphere, I’ve been channeling my inner market historian (think Indiana Jones, but with more spreadsheets and fewer booby traps). Specifically, the dot-com bubble of the late 1990s to early 2000 offers valuable lessons in both exuberance and caution. Below, I'll compare and contrast the two rallies in terms of returns, driving factors, the aftermath of the dot-com burst, and potential scenarios for the current AI boom. My goal is to provide context for your portfolios as we approach year-end 2025.

 

Returns: Explosive Gains with Concentration Risks

The dot-com era saw the NASDAQ Composite Index skyrocket from 751.49 in January 1995 to a peak of 5,048.62 on March 10, 2000—a 572% gain over five years, driven largely by tech and internet stocks.1 However, this euphoria reversed dramatically, with the index plunging 78% to a low of 1,114.11 by October 9, 2002.2

Fast-forward to the AI rally, which gained momentum following the November 2022 launch of ChatGPT and has accelerated through 2025. NVIDIA has delivered returns of approximately 1,150% from January 2023 through October 2025.3 The "Magnificent Seven" tech giants (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta, and Tesla) collectively rose 75.7% in 2023, outpacing the broader S&P 500's 24.2% gain that year.4 Year-to-date in 2025, the S&P 500 is up approximately 22%, with roughly 75% of those gains attributable to the Magnificent Seven, led by NVIDIA (+32%) and Broadcom (+56%) through Q3.5

 

Key Contrast: While both periods featured outsized gains concentrated in a handful of names, the AI rally's returns thus far have been even more compressed in time (under three years vs. five) and tied to more established giants with real earnings power, rather than speculative startups.

 

Driving Factors: Hype Meets Innovation

The dot-com bubble was fueled by the explosive adoption of the World Wide Web, which sparked widespread speculation in internet-based companies. Low interest rates, a post-Cold War economic expansion, and abundant venture capital—peaking at $100 billion annually in 2000—created a perfect storm of overvaluation.12

Today's AI rally shares some speculative fervor but is underpinned by tangible technological leaps, including large language models and generative AI tools. Capital expenditures among the Magnificent Seven surged 40% year-over-year in 2024, reaching over $200 billion, largely directed toward AI infrastructure.13 NVIDIA's revenue grew from $27 billion in fiscal 2022 to $96 billion in fiscal 2025, driven by data center demand.14

 

Key Similarity: Both rallies thrived on transformative tech narratives amplified by easy money (federal funds rate averaged 5.2% in the late 1990s; near-zero rates persisted through 2021).15

 

Aftermath of the Dot-Com Rally's End (Early 2000)

The bubble's burst in 2000–2002 was brutal: Over 50% of public dot-com companies failed by 2004, and venture funding collapsed 95% from its 2000 peak.16 The NASDAQ took 15 years to reclaim its March 2000 high, not until April 23, 2015.17 The broader S&P 500 fell 49% from its peak and contributed to a mild recession, with U.S. unemployment rising from 4.0% in 2000 to 6.3% by June 2003.18 For context on more recent volatility, the post-COVID rally saw the S&P 500 surge ~100% from its March 23, 2020 low of 2,237 to its late-2021 peak, before correcting 25% in 2022 amid inflation and rate hikes.19 Recovery was swift, with a 24.2% gain in 2023 and continued strength into 2025.20

 

Spotlight: Cisco's Role in the Dot-Com Bubble vs. NVIDIA in the AI Rally

A striking parallel emerges when comparing Cisco Systems, the networking powerhouse that enabled the internet's explosive growth, to NVIDIA, the GPU leader fueling today's AI infrastructure. Both companies have embodied the "picks and shovels" dynamic of their respective tech revolutions—supplying essential hardware to a flood of innovation—leading to meteoric stock ascents and sky-high valuations that captivated investors.

 

Similarities in Stock Prices and Valuations: Cisco's shares surged over 1,000% from its 1990 IPO through its March 2000 peak of $80 (split-adjusted), briefly crowning it the world's most valuable company with a market cap exceeding $500 billion.6 NVIDIA mirrors this trajectory, with its stock rocketing approximately 2,000% from its October 2022 lows to an all-time high near $201 in late October 2025, propelling its market cap to a record $5.025 trillion and reclaiming the global valuation throne.7 Valuation metrics echo the exuberance: At its zenith, Cisco traded at a trailing P/E ratio as high as 472x in 1999 (or around 101x by some measures), far outpacing broader market norms.8 NVIDIA's current trailing P/E stands at 56.5x as of October 29, 2025, with a forward P/E of about 30x—elevated but reflective of similar hype-driven premiums during the rally's peak momentum.9 In both cases, these multiples stemmed from bets on transformative adoption: Cisco on ubiquitous internet connectivity, NVIDIA on AI's computing demands.

 

Differences in Stock Prices and Valuations: The pace tells a key divergent tale. Cisco's ascent unfolded gradually over a decade amid building infrastructure demand, allowing for some digestion of gains, whereas NVIDIA's has been a blistering three-year sprint, amplified by post-pandemic liquidity and AI's sudden virality—resulting in sharper volatility (e.g., NVIDIA's 2025 YTD +32% vs. Cisco's steadier multi-year climbs).10 Fundamentally, NVIDIA's valuations appear more anchored in explosive revenue growth (from $27 billion in fiscal 2022 to $96 billion in 2025), justifying a lower peak P/E relative to Cisco's more speculative froth, where earnings lagged the hype and led to an 88% plunge to $9.50 by 2002.11 Cisco's post-bubble stock languished below its inflation-adjusted peak for over two decades, underscoring the risks of infrastructure plays tied to unproven ecosystems; NVIDIA, by contrast, benefits from AI's broader applicability across industries, potentially supporting a quicker recovery if adoption sustains.

 

This analogy serves as a cautionary mirror: While NVIDIA's fundamentals shine brighter, the velocity of its rise invites parallels to Cisco's fate, reminding us that even indispensable enablers can falter if the underlying revolution stumbles.

 

What Could Happen with the Current AI Rally?

While AI's foundational technologies appear more robust than dot-com vaporware, bubble risks still loom large in 2025. The Magnificent Seven now trade at a collective forward P/E of 38x—above the dot-com peak average of 30x for tech leaders.21 Analysts project $1.5 trillion in cumulative data center and AI infrastructure debt by 2028, raising sustainability concerns.22 A sharp correction could erase $30–40 trillion in market value from the NASDAQ if sentiment shifts, per Goldman Sachs estimates.23

 

On the brighter side, equity-financed tech bubbles historically yield net positive long-term innovation—internet penetration grew from 16% in 2000 to over 60% today despite the crash.24 If AI delivers sustained productivity gains (projected at 1.5% annual U.S. GDP boost by 2030 per McKinsey), the rally could extend into a multi-year growth cycle.25

 

Our Advice: History underscores the value of diversification—lean into quality names, reduce exposure to speculative tech and balance portfolios with non-tech sectors such as utilities, healthcare and industrials. Revisit your goals and risk tolerance (click here for a free risk score) and make sure you have sufficient bond exposure to weather market declines. We're monitoring these dynamics closely and welcome a call to discuss your portfolio's positioning.

 

 

 

 

Footnotes

  1. NASDAQ Composite Historical Data, Yahoo Finance, accessed October 29, 2025. ↩
  2. Ibid. ↩
  3. NVIDIA Corporation (NVDA) Stock Price History, Yahoo Finance, January 3, 2023 – October 29, 2025. ↩
  4. Bloomberg, "Magnificent Seven Performance 2023," January 2024. ↩
  5. FactSet, S&P 500 Attribution Analysis, Q3 2025. ↩
  6. Morningstar, "Nvidia 2023 vs. Cisco 1999: Will History Repeat?" December 7, 2023; updated historical data via Yahoo Finance, October 29, 2025. ↩
  7. CompaniesMarketCap.com, NVIDIA Market Cap, October 2025; Yahoo Finance, NVDA Stock Price History. ↩
  8. Bravos Research, "Dot-Com Bubble Versus Today," April 1, 2024; Market Sentiment, "25 Years After the Dot-Com Bubble," April 22, 2025. ↩
  9. Macrotrends, NVIDIA PE Ratio, October 29, 2025. ↩
  10. Harding Loevner, "NVIDIA and the Cautionary Tale of Cisco Systems," November 22, 2023. ↩
  11. Ibid.; Nasdaq.com, "Why Nvidia Stock Is Not Like Cisco Before the Dot-Com Bubble Burst," June 25, 2024. ↩
  12. National Venture Capital Association, 2000 Yearbook. ↩
  13. Company 10-K filings, aggregate CapEx for Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta, Tesla, 2024. ↩
  14. NVIDIA Annual Report, Fiscal Year 2025. ↩
  15. Federal Reserve Economic Data (FRED), Effective Federal Funds Rate, 1995–2021. ↩
  16. Webmergers.com, "Internet Company Failure Report," 2004. ↩
  17. NASDAQ Composite Historical Data, Yahoo Finance. ↩
  18. Bureau of Labor Statistics, Historical Unemployment Rate, 2000–2003. ↩
  19. S&P 500 Historical Prices, Yahoo Finance, March 23, 2020 – December 31, 2021. ↩
  20. S&P Dow Jones Indices, 2023 Annual Returns Report. ↩
  21. FactSet, Forward P/E Ratios, Magnificent Seven vs. Tech Sector, October 2025. ↩
  22. Morgan Stanley, "AI Infrastructure Outlook 2028," September 2025. ↩
  23. Goldman Sachs Global Investment Research, "Tech Bubble Scenarios," August 2025. ↩
  24. International Telecommunication Union (ITU), Internet Usage Statistics, 2000–2023. ↩
  25. McKinsey Global Institute, "The Economic Potential of Generative AI," June 2023 (updated 2025). ↩