Tech pundit Erik Gordon said that a company’s stock drop demonstrates how the financial consequences of the AI boom halting would be even worse than the dot-com crisis.
Gordon has previously referred to the AI boom as a “order-of-magnitude overvaluation bubble.” Gordon is a professor of entrepreneurship who studies technology and financial markets at the University of Michigan’s Ross School of Business.
Some investors have predicted that tech stocks that are soaring on AI optimism would fall like dot-com firms did in the early 2000s, while others, including Kevin O’Leary, have rejected the analogy.
Gordon compared the market prices of CoreWeave, an AI infrastructure startup that went public in March, to Pets.com, the online pet supply retailer that rose to prominence as the “poster bozo” of dot-com hysteria.
According to Gordon, “more investors will suffer than suffered in the dot-com crash, and their suffering will be more painful” in a bursting AI bubble, as evidenced by the 33% decline in shares of Nvidia-backed CoreWeave over the past two days, which has erased around $24 billion from the company’s market capitalization. The decline followed the company’s most recent earnings, which revealed growing losses and infrastructural limitations.
At its peak in February 2000, Pets.com, which was supported by Amazon and a number of well-known venture capital firms, had a $410 million market value. However, within a year, the business announced bankruptcy, claimed it would sell off its assets, and delisted its stock.
“If you assume all $410 million was lost, the loss was tiny compared to what we might see in AI,” Gordon explained.
According to Gordon, CoreWeave demonstrates the abrupt and substantial losses that shareholders may experience. Its market value has dropped by nearly 60 times that of Pets.com at its highest point. Despite this, CoreWeave’s stock closed Thursday at almost $100 per share, more than double its $40 listing price.
According to Gordon, a tech stock with a lot of excitement can quickly wipe out $20 billion in worth.
The profits, according to a statement from CEO Michael Intrator, demonstrated “continued momentum across every dimension of our business.”
When the dot-com bubble burst, the S&P, which included dividends, fell by about 9% in 2000, 12% in 2001, and 22% in 2002. Thousands of tech workers lost their employment as a result of the bankruptcy of numerous startups.
Tech giants account for a significant portion of the value of the US stock market, and their market domination and profits have made them staples in pension funds and retirement portfolios.
Gordon told in 2022 that, compared to 25 years earlier, more people were investing in AI than in dot-com startups. After the AI boom ended, he said, there would be “more bowls of spaghetti” because those who were hurt by the downturn would cook at home in an effort to save money wherever they could.
O’Leary stated in an interview last week that the AI boom was not the same hype as the internet bubble because productivity can now be seen and measured dollar-by-dollar.
