Tech guru Erik Gordon says investors will 'suffer' far more from the AI boom than the dot-com crash
Gordon, an entrepreneurship professor who researches financial markets and technology at the University of Michigan's Ross School of Business, has previously called the AI boom an " order-of-magnitude overvaluation bubble."
Some investors have said tech stocks surging on AI bullishness will crash like dot-com companies in the early 2000s, but others, such as Kevin O'Leary, have dismissed the comparison.
Gordon contrasted the market values of Pets.com, the online pet-supplies retailer that became what he called the "poster bozo" of dot-com mania, and CoreWeave, an AI infrastructure startup that went public in March.
Nvidia-backed CoreWeave's shares have fallen 33% over the last two days, wiping about $24 billion from its market cap, showing how "more investors will suffer than suffered in the dot-com crash, and their suffering will be more painful" in a bursting AI bubble, Gordon said. The fall came after the company's latest earnings showed widening losses and infrastructure constraints.
Pets.com, backed by Amazon and several renowned VC firms, secured a market value of $410 million at its peak in February 2000. But within the next 12 months, the company declared bankruptcy and said it would liquidate its assets, and its stock was delisted.
"If you assume all $410 million was lost, the loss was tiny compared to what we might see in AI," Gordon said.
CoreWeave shows how sudden and significant losses can be for shareholders, Gordon said. The loss to its market cap is almost 60 times Pets.com's peak market cap. CoreWeave stock still closed at around $100 a share on Thursday, more than double its listing price of $40.
"It takes a hype-driven tech stock to instantly destroy $20 billion in wealth," Gordon said.
CoreWeave didn't immediately respond to a request for comment from Business Insider. CEO Michael Intrator said in a statement accompanying the earnings that they showed "continued momentum across every dimension of our business."
The collapse of the dot-com bubble saw the S&P, including dividends, drop by around 9% in 2000, 12% in 2001, then 22% in 2002. Scores of startups filed for bankruptcy, and thousands of tech workers lost their jobs.
Tech titans make up a large chunk of the US stock market's value, and their profits and market dominance have made them mainstays of retirement portfolios and pension funds.
In 2022, Gordon told Business Insider that more people were invested in AI than in dot-com companies 25 years ago. He predicted there would be " more bowls of spaghetti" after the AI boom burst, as people who got burned by the slump would cook at home to save money and cut costs wherever possible.
Speaking to Business Insider last week, O'Leary said the AI boom wasn't the "same hype that the internet bubble was, because today, you actually can see the productivity and measure it on a dollar-by-dollar basis."
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