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Investing.com -- This week marks 25 years since the bursting of the dot-com bubble, an event that saw the Nasdaq index lose over a third of its value in a single month and ultimately decline nearly 80% by 2002.
Given the correction in technology stocks in 2025, Goldman Sachs explored the parallels and differences between then and now, drawing lessons for investors.
The dot-com boom was fueled by exuberance around the commercialization of the internet, with the Nasdaq rising fivefold between 1995 and 2000.
Goldman Sachs explains that at its peak, the index had a 200x P/E ratio, far exceeding even Japan’s 1980s stock market bubble.
Stocks like Qualcomm (NASDAQ:QCOM) soared 2,619% in 1999, and multiple large-cap stocks gained over 1,000% in a single year. However, the market collapsed from March 2000, wiping out billions in investor wealth.
“Enthusiasm around an innovation is a common characteristic around speculative bubbles in the stock market,” said Goldman Sachs. The bank adds that speculative bubbles often follow a similar pattern.
They explain that a breakthrough technology reaches commercial scale, attracting large amounts of capital and driving stock valuations higher.
As speculation builds, investors overestimate the future cash flows these companies will generate. Eventually, the bubble bursts, but the underlying technology remains viable.
Over time, the industry consolidates, and a few dominant players emerge, reshaping the market.
Despite the rapid rise of artificial intelligence and technology stocks in recent years, Goldman Sachs says it “continues to believe that the technology sector is not in a bubble.”
“A critical difference between the dominant technology companies today and those of the technology bubble is that valuations are much less extreme and the fundamentals of the technology sector are much stronger,” adds the bank.
The firm advises investors to remain diversified across multiple sectors to navigate market volatility.