โWe get bubbles when everybody believes the price cannot go down,โ venture capitalist Ben Horowitz wrote in an email. โThe clearest sign that we are not actually in a bubble is the fact that everyone is talking about a bubble.
The dot-com boom and the AI boom were both narrowly focused. Eighty per cent of venture investments in 2000 went to internet companies. This year, 64 per cent went to AI startups. The technical term for this is โputting all your eggs in one basket.โ
But the two booms have otherwise diverged in scale. The three most highly valued companies of the dot-com era were Cisco, Microsoft and Intel, all of which supplied the technology that made internet startups possible. Each was valued around $500 billion at its peak.
Today, Nvidia, the chipmaker that plays a similar role for the AI boom, is valued at more than $4.5 trillion. It and other AI companies such as Amazon, Google, Meta and the privately held OpenAI are together worth more than the $17 trillion capitalisation of the entire stock market in 2000.
That difference in scale is both alarming and โ conversely โ a comfort. The wealth and power of these AI companies are partly why Federal Reserve Chair Jerome Powell sees no cause for worry. These companies โactually have business models and profits and that kind of thing,โ he said in October. โSo itโs really a different thingโ from the dot-com bubble.
To a large extent, the dot-com boom was a revolution from below. People around the country packed their bags and headed to San Francisco in the hopes of striking it big, just as they did in the original gold rush 150 years before. More than 2200 dot-com companies went public between 1996 and 2001. At the time, it seemed like a lot.
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By contrast, AI is a less populist phenomenon. OpenAI, Google, Meta and Microsoft have been engaged in a well-documented bidding war for talent, but those without expertise have little chance. There are 972,000 companies with .ai internet addresses, although it is unclear how many are viable enterprises.
Horowitz, a major AI investor, worked early in his career at Netscape, which popularised the web browser in the 1990s. Netscape was the inescapable company at the centre of the dot-com boom in the same way OpenAI is now in the AI boom. But the scales they were operating at were very different.
โIn 1996, Netscape had 90 per cent of the browser share, and we only had 50 million users, so there were 55 million people total in the internet market and roughly half of those were on dial-up,โ Horowitz said. โAt the same time, the software to build internet services was super immature and expensive, as was the corresponding hardware and the bandwidth.โ
Evite, a company that did online greeting cards, had 290 engineers, he noted. As a result, many dot-com businesses did not work because the products were too expensive and the customers too few.
AI is very different, Horowitz contended. The internet is a network, and its value increases as more people are added, he said. Online retailers in 1996 could reach only a small fraction of the population. Amazon now reaches just about everyone.
Boom or bust, one thing is for sure: Silicon Valley will take care of itself.
โNot all AI products are magical or even work,โ Horowitz said. โItโs not clear that they will work before the companies providing them run out of cash. So are some valuations in the private markets out of whack? Always. Thatโs how I stay in business.โ
This article originally appeared in The New York Times.
