Dot-Com Flashback: Are We Headed There Again?

Henry Blodget on AI Mania: Echoes of the Dot-Com Bubble, With Key Differences

Trade negotiations between the U.S. and China looked promising—until headlines hit that Beijing accused Nvidia of antitrust violations. That makes Nvidia a fitting case study for today’s hot-button market debate: is the AI-driven rally another bubble in the making?

Valuations certainly raise eyebrows. The S&P 500’s cyclically adjusted P/E ratio is near 38, just shy of dot-com era extremes, Morgan Stanley notes.

Enter Henry Blodget—a name synonymous with the internet boom and bust. Once a star analyst before being barred from Wall Street by the SEC, Blodget later founded Business Insider and ran it through its sale to Axel Springer. He sees familiar patterns playing out, but also crucial differences.

“Like the Internet, AI is already reshaping far more than tech,” Blodget says. “This year alone, $400 billion is being poured into AI infrastructure. That kind of spending is fueling global growth and markets. If it all unravels, the fallout won’t be confined to Silicon Valley.”

Still, today’s setup isn’t a carbon copy of the late ’90s. A large portion of AI investment is in private markets—sparing many retail investors if things sour. And unlike the debt-fueled frenzy of the dot-com years, much of today’s buildout is financed by the cash flows of mega-cap tech giants.

That doesn’t mean the risks are small. “If AI collapses, stock markets and commercial real estate will get hammered, data centers will sell for pennies, and hundreds of startups will vanish. But the pain should be more contained,” he argues.

Blodget admits his past calls were a mix of right and wrong. He correctly saw the internet’s transformative power, the bubble-like valuations of the late ’90s, and the fact that most dot-coms wouldn’t last. But he underestimated the depth of the crash—strong companies were dragged down too—and the number of eventual winners.

He points to the crowded search engine wars before Google dominated as a cautionary tale for today’s AI leaders. “These models consume massive capital and energy. Their progress relative to cost is slowing, and the next big leap always feels just a year away,” he warns.

Of course, some players will break through. Blodget’s most famous call was on Amazon, which left dismissive rivals like Barnes & Noble and Walmart far behind. “Executives who mocked e-commerce didn’t last. Investors who said internet stocks were ‘too expensive’ underperformed for years,” he recalls.

The only real unknown? Timing. “Is this 1996 or 1999?” Blodget asks. “There’s no way to know.”