Tech guru Erik Gordon warns investors will 'suffer' far more from the AI craze than the dot-com crash

Business Insider

3 days ago

A company's stock plunge shows how the financial fallout of the AI boom stalling will be much greater than the dot-com bust, tech guru Erik Gordon told Business Insider.
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."
Other investors have said tech stocks surging on AI bullishness will crash like dot-com companies in the early 2000s, but some, such as Kevin O'Leary, have dismissed the comparison.
Gordon contrasted the market values of Pets.com, the online pet-food 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 30% over the past two days, wiping about $23 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 its 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 about 56 times Pets.com's peak market cap. CoreWeave stock still closed at $105 a share on Wednesday, more than double its listing price of $40.
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 show "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."