Dot-Com Bubble Bursts

Setting the scene

By the late 1990s, the internet was transforming business, and investors poured money into dot-com startups. Companies with '.com' in their names saw stock prices soar, regardless of profits—many had no revenue model. The NASDAQ rose from 1,000 in 1995 to over 5,000 in March 2000, driven by speculation. Venture capitalists funded companies based on 'eyeballs' and 'mindshare' rather than earnings. Pets.com, Webvan, and other startups burned through hundreds of millions on Super Bowl ads and rapid expansion. The Federal Reserve raised interest rates in 1999-2000 to cool the economy.

What happened

The crash began on March 10, 2000, when the NASDAQ peaked at 5,048.62, then started falling. On April 14, 2000, the NASDAQ fell 9%, beginning a cascade. By October 2002, the NASDAQ had fallen 78% to 1,114, wiping out $5 trillion in market value. Hundreds of dot-coms went bankrupt—Pets.com, which had raised $82 million, folded in November 2000, nine months after its IPO. The crash also hit telecom companies that had overbuilt fiber optic networks. The broader market fell too, with the S&P 500 dropping 49% from 2000-2002.

Why it still matters

The dot-com crash ended the era of irrational exuberance but didn't kill the internet—Amazon, eBay, and other survivors emerged stronger. It taught investors to focus on fundamentals and business models rather than hype. The crash led to the Sarbanes-Oxley Act in 2002, increasing corporate governance requirements. It also cleared out weak companies, allowing capital to flow to viable internet businesses. The infrastructure built during the boom—fiber optic cables, data centers—enabled the next wave of internet growth. The crash demonstrated that technological revolutions follow a pattern of boom, bust, and eventual maturation, a cycle repeated with cryptocurrencies and AI.

Background

Surviving firms later helped define the modern internet economy.