Stock market crashes has Wall Street whispering ‘dot-com 2.0’

The stock market has been on a very bizarre rollercoaster since 2025 started, and it’s got all of Wall Street panicking. Well anyone but Warren Buffett. Anyway, the S&P 500 and Nasdaq 100 are both down by over 10%, and the Magnificent 7 stocks are performing so terribly that they’ve become something of an embarrassment at this point.

Traders are now throwing around one phrase: dot-com 2.0. The timing isn’t random. This month marks 25 years since the original internet bubble blew up and wiped out trillions. Now, in March 2025, with President Trump back in the White House, investors are watching the same signs show up all over again—this time fueled by AI.

The rally this time started in October 2022, when stocks bounced off their lows. Over the next 16 months, the S&P 500 surged 72%, adding more than $22 trillion in market value. Then last month, it hit a peak and started heading down again. The Nasdaq 100 dropped over 10%, officially entering correction territory. That drop is now triggering memories of March 24, 2000, when the S&P 500 hit a record high it wouldn’t reach again until 2007. Three days later, the Nasdaq 100 closed at its all-time high, then crashed and stayed down for over 15 years.

AI crash follows same playbook as dot-com bubble

The last time this happened, it started in August 1995, when Netscape Communications Corp. went public. That IPO kicked off a wild five-year tech boom. Between then and March 2000, the S&P 500 nearly tripled. The Nasdaq 100 jumped more than 700%. Then it all collapsed. By October 2002, the Nasdaq had lost over 80% of its value, and the S&P 500 was slashed in half.

Right now, it’s AI stocks doing the heavy lifting. Big tech names like Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia are pouring in cash to build out AI infrastructure. According to estimates, this year alone those four companies—Alphabet, Amazon, Meta, and Microsoft—will spend around $300 billion on capital investments for AI. And despite the burn, they’re still expected to pull in a combined $234 billion in free cash flow.

That’s a big difference from 2000. Back then, the boom was built on hype and startups that had no money. Many companies were losing cash fast. “You had a huge number of companies in the top 200 market cap that had a negative burn rate,” said Ken Fisher, chairman of Fisher Investments. “The thing that makes a bubble a bubble is the negative burn rate. Companies in 2000 were just accepted as good, there was a ‘it’s different this time’ mentality because of the internet.”

Vinod Khosla, co-founder of Khosla Ventures, who was around for the original dot-com madness, said, “Investors have two emotions: fear and greed. I think we’ve moved from fear to greed. When you get greed, you get I would say indiscriminate valuations.”

And that’s exactly what’s happening again. Wall Street is throwing money at anything that has “AI” in the press release. But there’s a gap between profit and promise. Just like in 2000, valuations are going crazy.

Investors remember the dot-com lies, and now they see AI hype

The AI boom looks different on paper, but the structure feels the same. Daron Acemoglu, an economist at MIT and Nobel Prize winner, said, “There was a lot of hype around the internet, which materialized well before anybody had a business model for making money from the internet. That’s why you had the internet boom and the internet bust.”

During the dot-com craze, companies faked their way into the market. Some just slapped “.com” onto their names to go public. There were no earnings. No real users. Just vibes. The Nasdaq Composite had a price-to-earnings ratio of 90 at one point in 1999. Today, it’s around 35, but Wall Street knows that number doesn’t tell the full story. Back then, they stopped even using normal valuation metrics. They started measuring success by “mouse clicks” and “eyeballs.” That’s how far it went.

Anthony Saglimbene, chief market strategist at Ameriprise Financial, said, “I remember brokers spending as much time on their personal accounts as their clients’. They were making as much from their own investments as their salary.”

At least 13 companies in the Nasdaq 100 were burning cash as of March 2000, including names like Amazon.com, XO, Dish, Ciena, Nextel, PeopleSoft, and Inktomi. That didn’t stop people from buying shares in money-losing companies like Pets.com and Webvan.

Julie Wainwright, the former CEO of Pets.com, remembered how fast the mania spread. “It was a land grab,” she said. The company got a boost in June 1999 when Amazon and others invested $50 million. “Very shortly after that, I think seven other pets companies were funded. That absolutely made no sense.” Pets.com went public in February 2000 and was gone by November.

Even the big names messed it up. Steve Case, former CEO of AOL, pushed through the Time Warner merger in January 2000—right at the peak. On paper, it looked strong. In real life, it failed. The merger tanked, and by 2009, the whole thing was dead.

“The internet was such a big idea, had such a transformative impact on society, on business, on the world, that those who played it safe generally got left behind,” Steve said. “That leads to this kind of focus on massive investments to make sure you’re not left behind, some of which will work, many of which won’t work.”

Wall Street watches history repeat with bigger dollars

After the dot-com bubble, it took just a few things to bring the entire fantasy down. The Federal Reserve started hiking interest rates to slow the market. Then Japan slipped into a recession. Suddenly, nobody wanted to gamble on money-losing stocks anymore.

Jim Grant, founder of Grant’s Interest Rate Observer, said, “They were right to be bullish on the business prospects for the internet. Were they right to pay, you know, 10 times revenues for Sun Microsystems and lose like 95% of their money? No.”

And he’s not wrong. The tech behind the crash eventually changed the world. But the investors didn’t get paid. The timing was wrong. The risk was stupid.

Rob Arnott, founder of Research Affiliates, said, “It happened gradually, that is to say the embrace of the internet. Human beings are creatures of habit, and the embrace of the internet for most of us was gradual. Today, we use the internet for everything. Back in 2000, that wasn’t as true.”

But that doesn’t erase the losses. The dot-com crash wiped out about $5 trillion. And the same mistakes are back on Wall Street—just dressed up as machine learning this time. If the script plays out again, the big names might survive. The rest won’t. And the ones still holding the bag will be the ones who fell for the hype, again.

Wall Street has seen this movie before. Now it’s wondering how it ends this time.

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