"In many ways, it feels like the ongoing AI boom (or revolution) is mirroring the ends that unfolded prior to the big dot-com internet bubble burst of 2000-01. We've seen quite a bit of circular financing among the giants, and, as Dr. Michael Burry of The Big Short fame outlined in a recent note, Nvidia ( NASDAQ:NVDA), which is leading the charge on the AI chip race, seems to draw similarities with Cisco ( NASDAQ:CSCO) from the internet boom days."
"As it turned out, expectations were greatly overexaggerated, and shares of Cisco took a massive hit to the chin when the great bubble burst finally did happen. Indeed, Cisco seemed to be right in the blast zone when the bubble burst. Believe it or not, Cisco stock only recently recovered the ground it had lost from its 2000 peak in the past year."
"With many promising AI startups popping up left, right, and center, with many big-name visionaries leaving their big roles behind for a shot to lead the charge in this revolution, there's a lot of excitement mixed in with the concern. Undoubtedly, the dot-com bubble days saw a lot of startups come from out of nowhere across the board. Many of them didn't make it when the bubble burst and insolvency set in."
Rapid AI investment and financing activity draw parallels to the late-1990s dot-com boom, with circular financing among large firms and Nvidia compared to Cisco's pick-and-shovels role. Expectations for companies like Cisco were overinflated during the internet bubble, leading to severe share-price declines and a decades-long recovery. The current AI environment features many startups and high-profile leaders leaving established roles to found new ventures, increasing both optimism and risk. Historical precedent warns that many startups may fail if a bust occurs, even if AI presents faster paths to profitability. Market valuations could suffer sharp reversals if exuberance fades.
Read at 24/7 Wall St.
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