CandleFocus Glossary Editor
The dotcom bubble, sometimes referred to as the Internet bubble or the technology bubble, was a period of massive speculation and investment activity in technology stocks that occurred in the late 1990s. It began in 1995 with the exploding stock values of Internet-based companies. Throughout the decade, venture capitalists, investors, and technology executives poured money into new Internet-based companies, believing that the burgeoning technology sector would bring great riches.
The explosive growth in the technology sector led to a massive surge in the prices of technology stocks, with many stock values rising at an incredible rate. The Nasdaq, an index of technology stocks, more than quadrupled in value between 1995 and the peak of the dotcom bubble in March 2000. Companies such as Amazon and Google soared in value. As the dotcom bubble burgeoned, so too did the number of Internet companies; in 1998 and 1999, more than 200 Internet companies launched an initial public offering.
The living embodiment of the dotcom bubble was the technology website Pets.com. The company, launched in 1999, quickly became an extraordinarily visible part of the Internet boom and was featured in an expensive Super Bowl advertisement. However, the Pets.com business model was ultimately flawed and the company went bankrupt in 2000.
The dotcom bubble eventually burst as stock values started to deflate. Investors in the bubble stocks started selling out of their positions as technology stocks dropped in value and tech companies began to go bust. The Nasdaq lost almost 77% of its value between its peak in March 2000 and its trough in October 2002. Many tech companies, such as Pets.com, were wiped out and investors lost billions of dollars.
The dotcom bubble should serve as a reminder of the power of irrational exuberance in the stock market and of the importance of using due diligence when investing in companies. Though some tech companies, such as Amazon, flourished despite the collapse of the bubble, the damage certainly outweighed the benefit of the dramatic stock elevation in the late 1990s.
The explosive growth in the technology sector led to a massive surge in the prices of technology stocks, with many stock values rising at an incredible rate. The Nasdaq, an index of technology stocks, more than quadrupled in value between 1995 and the peak of the dotcom bubble in March 2000. Companies such as Amazon and Google soared in value. As the dotcom bubble burgeoned, so too did the number of Internet companies; in 1998 and 1999, more than 200 Internet companies launched an initial public offering.
The living embodiment of the dotcom bubble was the technology website Pets.com. The company, launched in 1999, quickly became an extraordinarily visible part of the Internet boom and was featured in an expensive Super Bowl advertisement. However, the Pets.com business model was ultimately flawed and the company went bankrupt in 2000.
The dotcom bubble eventually burst as stock values started to deflate. Investors in the bubble stocks started selling out of their positions as technology stocks dropped in value and tech companies began to go bust. The Nasdaq lost almost 77% of its value between its peak in March 2000 and its trough in October 2002. Many tech companies, such as Pets.com, were wiped out and investors lost billions of dollars.
The dotcom bubble should serve as a reminder of the power of irrational exuberance in the stock market and of the importance of using due diligence when investing in companies. Though some tech companies, such as Amazon, flourished despite the collapse of the bubble, the damage certainly outweighed the benefit of the dramatic stock elevation in the late 1990s.