Adapted by:
Javier Pastor
Senior WriterComputer scientist turned tech journalist. I've written about almost everything related to technology, but I specialize in hardware, operating systems and cryptocurrencies. I like writing about tech so much that I do it both for Xataka and Incognitosis, my personal blog.
Alba Mora
WriterAn established tech journalist, I entered the world of consumer tech by chance in 2018. In my writing and translating career, I've also covered a diverse range of topics, including entertainment, travel, science, and the economy.
In 1995, Yahoo! received its first round of external funding. Within just one year, the tech company increased its advertising revenue from $1.4 million to $19.1 million, representing a growth of 1,200%. The business was rapidly expanding, and by late 1995, Reuters and Softbank had invested an additional $5 million.
In April 1996, Yahoo! went public for the first time, with its stock peaking at $43 on the first day of trading. By 2000, Yahoo!’s stock reached an all-time high of $450 a share. However, just a year and a half later, in September 2001, it closed at an all-time low of $8.11. In a short time, Yahoo experienced a dramatic rise and fall in its value, exemplifying the dot-com bubble phenomenon.
The dot-com bubble rattled stock markets and affected the finances of millions of people. Many argue that a similar scenario is currently taking place in the artificial intelligence market. Since the emergence of ChatGPT, the AI sector has generated immense expectations. In fact, these expectations are even greater than those surrounding the Internet in the late 1990s.
This situation has sparked discussions about a potential AI bubble, with several apparent indicators:
- Extraordinary valuations, minimal revenues: Many AI startups, including companies like OpenAI, have staggering valuations. However, their revenues are meager compared to their losses. In other words, they’re burning through cash at an alarming rate.
- Too much competition: Many of these companies are adopting subscription models with several pricing plans. However, the competition is fierce. No single model stands out as superior, leading to the possibility of one winner and many losers.
- Expectations vs. reality: Executives at these companies are instilling high hopes about AI’s impact on our world, but tangible results are scarce.
- AI everywhere: The term “AI” is currently overused, diluting its meaning. It seems that every product must incorporate AI, even if it isn’t central to its functionality.
- Regulatory and ethical challenges: The rapid advancement of AI is also confronting significant regulatory scrutiny. Concerns regarding potential misuse of the technology (like deepfakes) and its negative effects (such as impacts on employment) present barriers to its development.
The dot-com bubble followed similar patterns, and there are concerning signs that something unusual is happening in the market. Investor behavior appears more speculative than rational, and media coverage is rapidly increasing. Additionally, there’s an overconfidence regarding the future, with risks being largely overlooked. Is the AI bubble a reality?
From the Dot-com Boom to the Potential AI Bubble
There are key differences between the dot-com bubble and AI’s situation today. For one, AI is driving a product that’s just as robust, if not more so, than the Internet was when the dot-com bubble burst. The impact of AI is already being felt in several industries, like programming.
In many cases, AI doesn’t replace human labor but enhances it. AI serves as a new “bicycle for the mind,” helping users of all fields to accomplish tasks more efficiently and effectively.
Unlike the dot-com era, the current push for AI is largely driven by major tech companies, who are determined not to be surpassed by competitors.
Back then, Internet startups such as Yahoo! and Google surprised established giants. Today, while some startups like OpenAI have achieved extraordinary valuations, they face significant competition from well-established companies. Examples include Microsoft, Alphabet, and Nvidia, all of which have benefited from the rising interest in AI.
The potential of AI is as apparent, if not clearer, than the potential of the Internet two decades ago. However, many startups during the dot-com bubble lacked a clear business model. Often, purchasing a .com domain and presenting a compelling sales pitch was enough to secure immediate funding. Investors didn’t want to miss out on emerging opportunities.
The Internet ultimately proved to have an unprecedented impact on humanity, leading to the creation of tech giants that built on that revolution. AI is generating massive and, at times, unsettling expectations. However, whether it’s experiencing another bubble similar to the dot-com boom remains unclear. Only time will tell.
Image | Nicholas Cappello
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