CounterPunch Exclusives

CounterPunch Exclusives

Will Gravity Pull Down the AI Bubble?

Still from Steven Spielberg’s “AI.”

I have written before on the AI bubble. The stock valuations we are seeing now look a lot like the valuations we saw before the Internet bubble began to crash in 2000. Even a quarter century later, people miss much of the story of that bubble.

It’s true we had companies that never made a profit, like Pets.com, with valuations in the billions. But the story went far beyond some flaky companies having ridiculous market capitalizations. The irrational exuberance, to use Alan Greenspan’s great term, infected everything.

Ford’s stock price more than tripled from 1996 to its peak in 2000. It then fell by more than 70 percent at its trough in 2003. McDonald’s, which is about as far from the Internet as you can get, had its stock price rise by almost 80 percent from 1996 to its bubble peak. It also lost roughly 70 percent of its value over the next three years.

But the best model for some of the AI giants may be a company like Cisco Systems. Unlike the flaky startups, Cisco Systems was a real company with a useful product. It makes much of the hardware that provides the backbone for the Internet. But its stock price nonetheless went through a crazy boom and bust.

From the start of 1996 to its peak in 2000, Cisco’s stock price went up more than 2000 percent. It briefly had the largest market capitalization of any company in the world, at more than $300 billion, which would be the equivalent of $1 trillion in today’s........

© CounterPunch