AI frenzy is bad, but the dot-com bubble was worse

Is the artificial intelligence hype train the same phenomena that drove markets as the dot-com bubble? Bloomberg Opinion Columnist John Authers highlights the key differences between the two and the outlook for tech companies benefiting the most from these growth drivers.

Video Transcript

RACHELLE AKUFFO: Talking about AI, the technology has been around for decades, but has become a focus of investor fervor in recent months, thanks, in part, to poster child, ChatGPT. And the comparisons with the dot-com boom are clear. But John Authers was at the "Financial Times" during that period, and was across it all.

He says, it's difficult not to look at AI through that lens. Let's get back to John. Now Bloomberg opinion columnist. So, John, bringing this back here, where do the differences between the dot-com boom, and this AI fervor-- where do they end?

JOHN AUTHERS: Well, I know where the dot-com boom ends. I don't yet know where the AI boom ended. The similarity is fairly straightforward that you have a very exciting breakthrough technology that everyone can see will probably have profound effects on people's lives, and that will plainly make a lot of money for someone. But those earnings, that money is most likely to be way into the future, or a long way into the future. And it's very hard to gauge.

So anybody who told you back in '95, when Netscape IPO'd that the internet was going to be a great thing, were right. Netscape, as it turns out, is a name that has dropped. It's become a historical footnote, even though it was, at one point, the absolutely hegemonic-- um, absolutely hegemonic web browser. And, um, um-- sorry, interruption of my kids in the background.

- That's all right. [LAUGHS]

JOHN AUTHERS: So the, um--

JULIE HYMAN: So--

JOHN AUTHERS: When it comes--

JULIE HYMAN: So, John, if-- if what you're saying applies, and it probably does, right? The idea being that while we can all recognize that this is a powerful technology that potentially will change a lot, it is difficult to know who will win, and who will not win, who might not even be around, right? And so--

JOHN AUTHERS: Well, I mean--

JULIE HYMAN: Right?

JOHN AUTHERS: In the case of the dot-com bubble, yeah. Google had not even gone public by the time the dot-com bubble burst. Facebook didn't even exist. A number of first movers didn't get to-- get to assert their dominance for the longer term.

So, for example, AltaVista was the dominant search engine for several years. I had it as my home page for about three years. Its disappeared. Even Myspace was the dominant social media player before Facebook came in.

So yeah, you don't know who is going to win. And the, quote unquote, rational thing to do is, therefore, to buy lots and lots of stocks of names that might benefit. Uh, and then if you're lucky, you find one of the names that really is going to win long-term, like Amazon. But you're resigned to pumping a lot of capital into a lot of places that aren't going to make it. Now we haven't yet, in the case of AI, seen what we saw in dot-com, which was large numbers of small companies with very little going for them--

- Mm-hmm.

JOHN AUTHERS: --some cases, not even having revenues yet, going public and attracting-- attracting money. Nothing remotely like that has happened. But when I look at NVIDIA, amazing story. Making very real money. The comparison with Cisco is quite real.

Cisco, like NVIDIA, the idea is, we've got this great new technology. This is a company that builds the infrastructure for that technology. It's still trading, Cisco now, less than it was at the top of the dot-com bubble.

That is what concerns me, that it's valuation was 200 times earnings. NVIDIA isn't far off that now. That is concerning.