What is an Internet Bubble?

Published by Thomas Herold in Economics, Investments

'Internet Bubble' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

The Internet bubble is also known as the dot com bubble. This Internet bubble proved to be a spectacular asset bubble that occurred during the years of 1995-2000. It’s peak turned out to be on March 10 of 2000 when the NASDAQ stock market saw a high of 5,132.52 in the middle of the trading day. In this time, stock markets of all developed countries witnessed a swift and dramatic rise in equity values. Internet stocks and other relevant fields were the drivers of this phenomenal boom. It became a boom cycle that went bust as the Internet bubble proved to be unsustainable and show cased stocks with unjustifiable values.

This Internet bubble bore numerous characteristics typical of other forms of asset bubbles. A huge number of companies started up that were Internet technology based. These dot com companies proved to be spectacular failures in many cases. Any company that had an e in front of its name, or a .com at the end of the name witnessed spectacular rises in price, regardless of their products and fundamentals. In the constant allure of the glitzy Internet stocks, reason and rational thought were exchanged for hype.

This cycle of dramatically gaining prices in stocks combined with individual investors speculating in stocks, confidence that Internet companies would certainly make money at some point, and significant amounts of available venture capital all led to a boiling point. Investors became eager to look past traditional concepts of investing such as price to earnings ratio. Instead of this, they substituted in unbridled confidence in the possibilities of technological achievements.

Even though these prices in the Internet bubble exploded spectacularly, taking the NASDAQ stock exchange down to between 1,000 and 2,000 in a year or so, the technological revolution did not die out with the bubble. The Internet bubble did give rise to the constant commercial expansion of the Internet through the advancement of the World Wide Web. Even though many of those initial companies failed, enough other ones survived to make the Internet bubble evolve into a more sustainable Internet boom that in some respects is still ongoing even in 2010.

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The term 'Internet Bubble' is included in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.