The Dot-Com Bubble and Potential AI Bubble Share One Striking Similarity, but Also a Critical Difference

Three decades ago, the advent and proliferation of the internet changed corporate America's growth trajectory forever. It introduced sales and marketing channels that hadn't previously existed, as well as broke down information barriers between Wall Street and Main Street, giving rise to the retail investor revolution. Retail investors are playing an increasingly important role on Wall Street.

For decades, investors have been waiting for the next "internet" moment to come along. After an extensive wait, the rise of artificial intelligence (AI) has seemingly answered the call.

Image source: Getty Images.

Empowering software and systems with the necessary tools to make split-second decisions and become more efficient at their tasks over time, all without human oversight, is a technological leap forward that PwC's analysts peg at a $15.7 trillion addressable opportunity by 2030. The sky-high global potential of AI is responsible for propelling industry leaders Nvidia (NASDAQ: NVDA), Broadcom (NASDAQ: AVGO), and Taiwan Semiconductor Manufacturing (NYSE: TSM) into the trillion-dollar club.

But when a hyped technology or innovative trend fuels parabolic stock gains, it's bound to draw the ire of skeptics, as well.

Although history doesn't precisely repeat itself on Wall Street, it does have a tendency to rhyme. In other words, what's happened in the past can often help investors somewhat accurately predict what's to come in the future. With the 26th anniversary of the dot-com bubble bursting approaching, some investors are questioning whether AI stocks, such as Nvidia, Broadcom, and Taiwan Semiconductor (better known as "TSMC"), will share a similar fate and endure a bubble-bursting event.

There's one stark difference between the AI revolution and the dot-com era

In many respects, the rise of AI and the internet revolution were similar. The potential for these technologies to positively impact the growth trajectories of corporate America and captivate the attention of retail investors is unmatched among game-changing trends looking back several decades.

However, there's one stark difference between the two most significant technological leaps of the last 30 years: existing foundations.

When the internet began to proliferate, a notable percentage of dot-com stocks that ascended to the heavens had no established operating segments to fall back on. Investors simply saw a dot-com in a publicly traded company's name or read an S-1 prospectus that promised pie-in-the-sky growth thanks to the internet and piled in. While there were some established companies during the dot-com era that relied on the internet to eventually transform their operations, there was an overabundance of unproven dart throws that ultimately failed to live up to lofty expectations.

In comparison, the AI revolution is primarily being led by companies with a history of profitability and one or several proven operating segments. While there's no denying that Nvidia, Broadcom, and TSMC have seen the lion's share of their growth over the last three years derive from the AI revolution, these were all highly profitable businesses before AI became the hottest thing since sliced bread.

Nvidia's graphics processing units (GPUs) were staples in high-performance computers and enterprise data centers before artificial intelligence became Wall Street's No. 1 trend. As for Broadcom, it's a top supplier of wireless chips and accessories in next-generation smartphones. Meanwhile, TSMC offers a range of chip fabrication solutions beyond the AI realm, including central processing units.

The point being that most AI stocks today have existing foundations to fall back on, with many of these companies already profitable. This wasn't the case with internet stocks, many of which were losing money, burning cash, and betting on an era of irrational exuberance to continue indefinitely.

Image source: Getty Images.

This striking similarity between the dot-com bubble and the potential AI bubble is definitely concerning

However, there's also a striking similarity between the two hottest technological trends over the last three decades -- and it should, rightly, concern investors.

The one trait that's been consistent with every next-big-thing innovation over the last 30 years is investors overestimating the adoption, utility, and/or optimization rate of that trend. This has been observed with the internet, followed by genome decoding, nanotechnology, 3D printing, blockchain technology, cannabis, and the metaverse.

When a hyped trend captivates the attention and capital of Wall Street and retail investors, it's easy to become enamored by sky-high addressable markets. It's also common for the fear of missing out, commonly known as "FOMO," to kick in. Since the beginning of 2023, shares of Nvidia, Broadcom, and TSMC have respectively gained 1,170%, 529%, and 360%!

⚠️ History lesson: every major tech or investment bubble bursts.

The US dot-com bubble burst after a ~400% run in 2000.

AI euphoria has driven nearly 600% stock gains in the last 5 years, according to BofA.

Is the AI Bubble burst coming soon? pic.twitter.com/Q8nEkGWkq0

-- Global Markets Investor (@GlobalMktObserv) September 12, 2025

On the one hand, sales of AI hardware and data center infrastructure have been off the charts. Demand for Nvidia's GPUs has been insatiable, with TSMC expanding its monthly chip-on-wafer-on-substrate capacity at a breakneck pace to increase AI-GPU production. In turn, this has been positive for Broadcom's advanced Ethernet fabric routers, which connect tens of thousands of GPUs in data centers to maximize performance and reduce tail latency.

While investor expectations for AI adoption have been high, sales data from Nvidia, Broadcom, and TSMC suggest that industry leaders are meeting or exceeding these lofty projections.

But where the thesis falls apart is when AI optimization is brought into the discussion. Although we're observing widespread corporate adoption of AI hardware, most businesses aren't remotely close to optimizing their AI solutions, maximizing the sales potential of this technology, or generating a positive return on their AI investments.

What the internet (and every subsequent next-big-thing trend) has taught investors is that every innovation needs adequate time to mature. While AI has all the tools needed to be a long-term game changer, there's been a flawless correlation spanning three decades of investors overestimating the adoption or optimization rate of new technologies. Nothing suggests artificial intelligence will be the exception to this unwritten rule.

While the established foundations of Nvidia, Broadcom, and TSMC should protect them from internet-esque peak-to-trough swoons, the bursting of an AI bubble would still, undoubtedly, hit these stocks hard.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.