Featured in Bloomberg Opinion: Assume an AI bubble. What difference would it make?
- Absolute Strategy
- Oct 1, 2025
- 2 min read
Consequences
The dot-com bust happened before Google had gone public. Facebook and Twitter did not yet exist. Netscape Navigator and Microsoft’s Internet Explorer were still fighting to be the dominant browser. The money lost by the irrationally exuberant back then did not stop the internet from transforming society and the economy. And several of the leading companies from that era remain in the lead today. However, Ian Harnett of Absolute Strategy Research makes this important point:
The lead players today are still some of the best supported companies from that era — Microsoft/Apple/Oracle/Amazon. However, that didn’t stop each of those mega stocks falling -65%, -80%, -83% and -94% respectively vs their Tech bubble peaks to their troughs. Another salutary lesson is that they took 16, 5, 14 and 7 years respectively to regain those 2000 peak prices!
If you are shareholder, then, a burst bubble could be really bad news. However, the fact that this bubble, like the dot-coms, has been funded primarily by equity is good news for everyone else, as the economic impact should be reduced. Harnett suggests that the correction when it comes will be more like the fallout from the dot-coms than from the financial crisis of 2008, which was driven by defaults on debt and was far more serious for the economy. It should also mean that central banks need do less in response.
AI probably will have profound consequences on the way we all work. But Schumpeterian creative destruction being what it is, there will be some pain ahead before we all enjoy the businesses that are being built.
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The comparison with the dot-com era was especially helpful; it’s a great reminder that even if valuations overshoot and correct, the underlying technology can still go on to reshape entire industries. As you pointed out, past tech leaders experienced massive drawdowns before eventually recovering, which puts today’s enthusiasm (and risk) into perspective .I also appreciated the balanced takeaway: a potential bubble burst might hurt investors, but because much of the funding is equity-driven, the broader economic fallout could be less severe than something like 2008. That nuance is often missing in mainstream discussions.I recently came across a similar discussion on a review blog https://samedaydiplomas.com/, and it offered an interesting perspective as well — especially around how hype cycles don’t necessarily…
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