NEW YORK, July 21 — What happens when a new technology captures the public imagination, cheap money meets easy regulation, and speculation runs ahead of reality? The dot-com bubble offers a textbook answer — one that investors, regulators and historians are still unpacking a quarter-century on. The numbers are still staggering.
Between 1995 and its peak on March 10, 2000, the Nasdaq Composite index rose by 600%. By October 2002 it had fallen 78% from that peak, wiping out all those gains and then some.
At the top, the Nasdaq carried a price-earnings ratio of 200 — more than double the 80 that Japan’s Nikkei 225 hit during its own famous asset bubble in 1991.
How the Bubble Formed
The origins trace to the late 1990s, a period when the World Wide Web was becoming a household fixture. The 1993 release of the Mosaic web browser is often cited as a key catalyst — it made the internet visually accessible. From 1990 to 1997, the share of U.S. households with a computer jumped from 15% to 35%, shrinking the digital divide and pulling millions online.
But the financial tinder was laid by policy. Declining interest rates made capital abundant and cheap.
The Taxpayer Relief Act of 1997 cut top marginal capital gains tax rates, a direct invitation to speculative investing. Then-Federal Reserve Chair Alan Greenspan made positive statements about the new economy, which encouraged the market’s enthusiasm. The Telecommunications Act of 1996 fuelled expectations that a wave of new technologies and services was just over the horizon.
Venture capital flowed freely. Investment banks rushed to bring internet companies public on the Nasdaq, often ignoring traditional metrics like price-earnings ratios.
In 1999 alone, Qualcomm shares rose 2,619%, and twelve other large-cap stocks each gained more than 1,000%.
The Peak and the Crash
Then came the reckoning. When the bubble burst, online retailers were among the first to collapse. Pets.com, Webvan and Boo.com shut down entirely. The telecom sector was ravaged: WorldCom (later renamed MCI Inc. in 2003 and acquired by Verizon in 2006), NorthPoint Communications and Global Crossing all failed.
Other companies — Lastminute.com, MP3.com and PeopleSound — were bought out on fire-sale terms. Larger, more established firms did not escape. Amazon and Cisco Systems lost enormous portions of their market capitalisation — Cisco‘s stock alone shed 80% of its value.
In total, trillions in market value were erased. The crash invited comparisons to earlier technology-driven booms that eventually sobered: railroads in the 1840s, automobiles in the 1900s, radio in the 1920s, television in the 1940s, transistor electronics in the 1950s, computer time-sharing in the 1960s, and the twin waves of home computers and biotechnology in the 1980s. The question that lingers as we write in July 2026 is whether any of those parallels are being written again, right now, in an age of artificial intelligence, crypto assets and quantum computing.
The mechanisms that created the dot-com bubble — cheap capital, regulatory shifts, technological enchantment and a suspension of disbelief on valuation — have not been repealed. Only the names and the tickers change.
Sources
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