Lessons From Dot Com Boom

THE TAKE

Dot Com To AI, Smart Investors Always Survive Stock Market Bubbles 

Twenty-five years ago this week, the Nasdaq hit its dot com era peak after rising more than 500% in five years. 

And then it collapsed.

A silver anniversary is a good moment to ponder upon what has changed in the last 25 years when it comes to stocks, stock markets and our approach towards them. 

Not much evidently, though there are some useful shifts and lessons.

The Wall Street Journal quoted Sun Microsystems CEO Scott McNealy speaking two years after the bust in 2002 saying how dumb it was for investors to buy his company’s stock at the peak: 

"Two years ago we were selling at 10 times revenues when we were at $64. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard.  And that assumes you pay no taxes on your dividends, which is kind of illegal.  And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?"

And then there was Cisco Systems which was going for 38 times sales and also became the most valuable company for a moment. Of course, both Sun and Cisco are still around.

Dot Com Vs AI Boom

Nvidia, the AI chip company was going at 56 times sales last year. 

Many analysts have tried to compare the dot com boom of 2000 with the AI boom right now. 

And while stocks have corrected in recent months, the question of a tech bubble still hangs somewhere.

The same analysts acknowledge that the dot com boom created some very strong tech companies and for example, fibre optic investments which paid off smartly, though after some time. 

But there are other differences to note. 

The big correction in AI stocks the last week of January 2025 was triggered not because AI or AI chips turned out to be duds but because someone, in this case, a Chinese company called DeepSeek came up with a radically cheaper version of the same thing.

The interesting point and where it comes home is this. 

The WSJ says outside of semiconductors, a sector inflated by Nvidia, one of the highest sales multiples back in January could be found in out-of-favour biotechnology companies. 

Many have little to no revenue but lots of promise. And there are Indian parallels.

Back to 2000, Indian IT companies were quoting at bizarre valuations.

G Chokkalingam, founder of Equinomics Research told me that in 2000 companies like Wipro were quoting at a price to earnings of around 150, as were other IT companies.

Some of these IT companies including Infosys of course are around and successful.

Many others turned out to be duds, frauds or both. The interesting thing is that while in the 2000s, the entire wave was IT or dot com, now it is not.

Wall Street for sure is more AI-led, as is China right now, but nowhere at the scale that we saw in the 2000s where tech would have commanded perhaps 60-70% of total market capitalisation.

No wonder, when IT fell, it took everyone and everything along. And of course when the Nasdaq crashed, so did the rest of the world.

Different Dimensions 

So, while we are back in a tech-dominated market, at least on Wall Street, the dimensions are different.

In India, the good news in some ways is that the themes are quite wide and have been shifting around, for good and bad.

For instance, defence stocks are rising again right now and defence and public sector stocks have been almost bubble like in India as a theme, much to the surprise of most veteran analysts.

But even if they were to crack badly, they would not affect the rest of the market.

As they did not affect when the markets and some of these stocks fell sharply from their peak in September 2024.

And to that extent, quite likely India’s bubble has already fizzled, at least in the first round. 

Think of it as a balloon which slowly loses air as opposed to bursting because of a pinprick.

Indian markets were at a peak market capitalisation of around $5.5 trillion and have dropped over $1 trillion from that September peak.

In 2014, India’s entire market was around $1 trillion. 

Chokkalingam points out that businesses have grown multifold in the last two decades, including companies like Wipro. But their price to earnings is only around 25. 

Ditto with other companies in the same space. So valuations have contracted and become more rational. 

But then themes have been shifting around.

There have been other companies, small and mid-sized which have seen bizarre multiples, including over 100. But they have been small, scattered and not suggesting a market-wide bubble a la 2000.

For instance, many stocks that were booming a few months ago have fallen up to 90% from their peaks. Are they duds or frauds or just riding a thematic bubble?  Quite likely one of these.

But this has not affected the whole market.

One thing that has not changed perhaps, in my understanding, is the retail frenzy that kicks off once a fad catches on.

The frenzy can be driven by multiple factors and take different dimensions. For example, Covid-19 accelerated the use of slick broking apps and the use of social media by purveyors of information or broking companies to ensnare mostly young people with limited income and savings, including into the dirty and dangerous world of derivatives.

In the 2000s, people started watching CNBC and were glued to movements in and around the Nasdaq, including in India. 

This time it is social media and the incessant flow of smart alecky tips and regurgitated content in the guise of wise counsel and advice. Easy to give when the markets are going up. Not so easy right now.

For younger Indians who have been attracted at a much greater extent than 25 years ago, the motive is also slowing earnings and inflation, and the prospect of investing to supplement income. 

For the brave or more reckless, it has been about taking many small bets on derivatives, or crypto.

Like before, smart investors learn from their mistakes and come back. Which on balance is a good way to evolve. Like it or not, the equity cult does grow, as it should and as it has in India.

The occasional shedding of froth and deflating of bubbles is also important for the sustained growth of the cult and the returns that markets provide to long-term investors.

Hopefully, the lessons from the latest market rise and fall have already been imparted and learnt.

Rs 10 Crore

Between January and September 2024, 34% of homes listed for sale in Delhi-NCR were priced at Rs 10 crore or more, outpacing Mumbai’s 18% increase, according to Business Standard. The luxury housing market boom is being fueled by NRI investments and infrastructural growth, with Delhi-NCR surpassing Mumbai as India’s top-selling real estate market. Gurugram alone contributed 66% of total sales value, pushing Delhi-NCR’s total market value beyond Rs 1 lakh crore. Meanwhile, property values in the region have surged 49% year-on-year, despite rising construction costs and limited inventory in premium segments.

—📦 FMCG’s Modest Rebound? India’s fast-moving consumer goods (FMCG) sector is expected to see a mild revenue rebound of 6-8% in FY26, up from the 5-6% growth projected for FY25, according to CRISIL Ratings. The uptick is expected to be driven by a gradual urban demand recovery and steady rural consumption, though challenges persist. Operating profitability of FMCG brands is expected to stay flat at 20-21%, after a 50-100 bps decline in FY25. A CRISIL study of 82 FMCG firms, covering one-third of the Rs 5.9 lakh crore sector, indicates stable credit profiles, though rising input costs and shifting consumer trends will need close monitoring.

—✈️ Sky Is The Limit. Indigo, the airline that holds the highest market shares in India’s domestic aviation market, is planning to spread its wings further. The airline wants to expand its international flight capacity to 40% by 2030, it said in an investor presentation according to The Economic Times. IndiGo introduced business class recently on domestic routes and wants to grow its fleet to 600 aircraft. These plans made the markets happy with the shares of Interglobe Aviation, the operator of IndiGo, reaching record highs and crossing the Rs 5,000 crore mark for the first time.

—👑 Trump Continues to Pump! Gurugram-based real estate firm Tribeca Developers partnered with the Trump Organisation, US President Donald Trump’s American conglomerate company, to launch a 2,500-crore rupee worth ‘Trump World Center’ in Pune, the group’s first commercial project in India, per The Economic Times. India has become The Trump Organisation’s biggest market outside of the US, with several residential properties across metropolitan cities in the country. The group’s further penetration into India comes at a time when India is also trying to establish a closer trade relationship with the US. 

—🛍️ Retail's On Fire! India’s retail boom isn’t slowing down. Urbanisation and evolving shopping habits are fueling leasing activity, with demand outpacing supply for the third year. In 2024, over 6.5 million sq ft of retail space was snapped up, slashing mall vacancies to 7.8% from 15.5% in 2021. High street rentals are soaring—Delhi’s South Extension and Mumbai’s Linking Road now command up to ₹1,000/sq ft. With mega-mall projects in NCR, Mumbai, and Hyderabad, retailers are expanding into larger spaces to meet growing consumer demand.

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH | ✂️ Rohini Chatterji | 🎧 Joshua Thomas