AI, stock valuations, and investing in a bubble

Editor’s note: This article first appeared in Money Matters, a newsletter from Britannica Money, on September 30, 2026.

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What the dot-com era can teach us about today’s technology.

© nicescene, David Carillet/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

It seems like only yesterday. I was a new(ish) trader with investable assets for the first time in my life. We had no kids yet, so I was eager to jump in. My first investments were companies I knew and loved: Disney, McDonald’s, and at that point my newest addiction, Starbucks.

Then the Internet, and talk of an “information superhighway” became part of the vocabulary, and the markets were off to the races. I remember the breathless coverage from the then-brand-new Nasdaq MarketSite about the so-called new economy—a crop of companies with no profits, and some with barely any revenue. A viable path to profitability? That’ll come later. This was the Internet, after all, and everything was changing, right before our eyes.

And suddenly, everyone was in on it. Ameritrade, E*Trade, and other new-economy online brokers showed what the Internet could actually do: Put the markets on your home computer and let you trade with a few clicks. Day trading took off, and the platforms’ chat rooms became clearinghouses for stock tips and rumors, replacing the old hot tip from your brother-in-law’s cousin whose best friend worked at the company.

Here’s the thing about the dot-com bubble: The optimists were right; the Internet really did change the world. As commerce moved online, information became instantly accessible and entire industries were created, transformed, and/or displaced. And some of the companies born during that era—Amazon.com, Priceline (now Booking Holdings), and later Google—became some of the most valuable companies in history.

But being right about the technology wasn’t the same as being right about an investment. By the late 1990s, dot-com investors were paying prices that assumed enormous growth far into the future. Some of these “new economy” darlings were worth more on paper than the Disney and McDonald’s shares I’d bought just a few years earlier—established businesses with decades-long track records of profits, cash flow, and dividends.

It’s one of the first lessons you learn in Finance 101: A share price, at any given point in time, is simply the market’s collective estimate of what a company’s future earnings are worth today. That’s it. When expectations get that high, a company doesn’t have to fail for its stock to get crushed. Sometimes a brief slowdown in its growth trajectory—or a slight change in the narrative—is enough.

Fast-forward a quarter century and the similarity is easy to see. We’re told that AI is on the cusp of transforming how we work, communicate, create, and consume information, just as the Internet did a few decades ago. And once again, we investors are being asked to put a price today on profits that may be years—or decades—away.

But this boom has a distinctly different shape. The Internet boom was crowded with young public companies raising money on little more than an idea. Today’s AI build-out is being financed by some of the richest companies on Earth. Microsoft, Alphabet, Amazon, and Meta are spending hundreds of billions of dollars a year on chips, servers, power, and hyperscale data centers, while NVIDIA is selling the chips (the “picks and shovels,” to use the gold rush analogy). Meanwhile, OpenAI and Anthropic have raised billions in private capital, reaching valuations once associated only with the world’s largest public companies—before most of us are able to buy shares.

First off, yes; I think we’re in an AI bubble. There’s a lot of money chasing AI, and some of the valuations require an awful lot of future earnings to justify them. That’s not to say that AI is a fad, a fraud, or a Ponzi scheme. I think AI will live up to much of the hype. But as the dot-com era taught me, being right about the future doesn’t necessarily mean you’ll make money investing in it at today’s prices. I certainly had a rough couple of years at the turn of the century. But I did learn a thing or three.

Thirty years ago, I was eager to find the next big opportunity. These days, I’m more interested in the price of each opportunity. Take it from me, not your brother-in-law’s cousin whose best friend works at the company: When the market starts blowing bubbles, price matters.