What Was the Dotcom Bubble
The dotcom bubble was a rapid rise in U.S. technology stock equity valuations fueled by investments in Internet-based companies during the bull market in the late 1990s. The value of equity markets grew exponentially during this period, with the technology-dominated Nasdaq index rising from under 1,000 to more than 5,000 between the years 1995 and 2000. Things started to change in 2000, and the bubble burst between 2001 and 2002 with equities entering a bear market
The crash that followed saw the Nasdaq index, which rose five-fold between 1995 and 2000, tumble from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on Oct. 4, 2002, a 76.81% fall.2 By the end of 2001, most dotcom stocks went bust. Even the share prices of blue-chip technology stocks like Cisco, Intel, and Oracle lost more than 80% of their value. It would take 15 years for the Nasdaq to regain its peak, which it did on April 24, 2015
The chart below shows the changes in the NASDAQ Index from 1994 to 2005 (note the peak formed around 2000)
The 1990s was a period of rapid technological advancement in many areas. But it was the commercialization of the Internet that led to the greatest expansion of capital growth the country ever saw. Although high-tech standard-bearers, such as Intel, Cisco, and Oracle, were driving organic growth in the technology sector, it was upstart dotcom companies that fueled the stock market surge that began in 1995
The bubble that formed over the next five years was fed by cheap money, easy capital, market overconfidence, and pure speculation. Venture capitalists anxious to find the next big score freely invested in any company with a “.com” after its name
The end of the nearly decade-long empire of .com companies marked the beginning of the new millennium in 2000. At the time, many feared that the major computers in global institutions, as well as the entire structure of the Internet in the world, might collapse with the double-digit number “99” to “00” (due to the change from 1999 to 2000). . This was the first blow to the dotcom bubble
The second major blow, however, came as the Federal Reserve raised interest rates, news to technology-driven companies that had “inflated” too much and borrowed heavily. It was not good. In fact, these companies created debt for themselves rather than making a profit, and this was reflected in their stock prices.
Amazon was one of the companies that survived the dotcom bubble
