‘Dot-Com Bubble 2.0’ could burst at any time

With AI mania driving unprecedented investment in the tech sector, Wall Street punters are racing to get a piece of the gold rush. Speculation on the NASDAQ is rampant, tech stock is being inflated well beyond actual profitability, and a horde of crypto-addicted zombie companies has been unleashed upon the markets. A colossal correction is only a matter of time.

As we have commented many, many times: capitalism’s organic crisis, which came to a head in the 2008 recession, forced governments to hurl trillions of dollars at the system, followed by trillions more during the COVID-19 pandemic. Overproduction restricted profitable avenues of investment in the real economy (industry, manufacture and so on), meaning much of this capital was left sloshing around with nowhere to go.

Combined with ultra-low interest rates, this fed an orgy of speculation on the stock markets, particularly in tech. Investors chased megaprofits by trading shares in loss-leading companies like Netflix and Uber, as well as betting on fads like cryptocurrency and NFTs.

But the party couldn’t last. Massive government spending since 2008 (necessary to keep capitalism on life support) provoked an inevitable inflationary crisis in 2022, causing central banks to raise interest rates. With the cheap money tap turned off and investor confidence rocked, tech companies lost billions of dollars. Cryptocurrencies tanked, NFTs became worthless, and the tech-focused NASDAQ stock exchange fell by 30 percent in a week.

That, it seemed, was that. The bubble had popped, the crypto craze was over, unprofitable companies would be wiped out in a process of ‘creative destruction’ and new regulatory measures put in place. Yet here we are in 2025: the NASDAQ closed at an all-time high in July, Bitcoin and Ethereum have just notched record values, and regulatory barriers are actually being lowered.

How can this be explained? Why didn’t the tech bubble burst when it was ‘supposed’ to?

Stretching the bubble

The general answer is that the organic crisis of capitalism has not been resolved. There are still few profitable avenues of investment, meaning speculators remain on the hunt for ‘get-rich-quick’ schemes. But this particular tech rally is based on three immediate factors: falling interest rates, the policies of Donald Trump, and the fever surrounding artificial intelligence. 

The Federal Reserve finally cut rates by 0.5 percent in September 2024, followed by two further 0.25 percent cuts in November and December. Cheaper credit fuelled a recovery of riskier assets. Cryptocurrencies began to rebound from the doldrums of 2022, helped by ‘pump and dump’ antics by the likes of Tesla CEO Elon Musk and celebrities such as YouTuber Logan Paul. This involves relentlessly hyping up (‘pumping’) new ‘memecoin’ scams, encouraging investment, before selling them off when their values fall (‘dumping’).

The crypto recovery was assisted further in January 2024, when the US Securities and Exchange Commission (SEC) approved spot exchange-traded funds (ETFs) for Bitcoin. This allowed Bitcoin derivatives to be traded on the stock market, rather than having to be bought and sold via a digital asset exchange like FTX. Off the back of this, the likes of Blackrock and Venture (the two biggest asset management companies in the world) started selling their own ETFs, lending clout and legitimacy to crypto that brought further investor interest.

Then we have Trump’s personal role in fuelling a new crypto craze. Despite writing off cryptocurrencies as a “scam” in 2019, he has since undergone a complete change of heart. Big tech crooks like David Sacks made hefty contributions to Trump’s second presidential campaign with the expectation that he would deregulate the crypto market, tearing up legislation introduced after the previous crash. Since coming to power, Trump has pledged to make the USA the “crypto capital of the world”.

Trump is ripping the guardrails off crypto and exposing swathes of the US economy to dangerously unstable digital assets in the hunt for new sources of profit. The resulting excitement has revived the cryptocurrency market, as investors look to capitalise, boosting Bitcoin to a record $124,000 per token in August. No matter how many times the volatility of crypto has resulted in disaster, investors keep playing the odds, hoping against hope that this time things will turn out differently.

‘Bitcoin treasury companies’: the new CDOs?

Added to this already precarious situation, a number of tech companies, struggling in a saturated market, are transforming themselves into glorified crypto ponzi schemes. Consider the “enterprise software firm” MicroStrategy, which went from near-bankruptcy to becoming the world’s largest corporate owner of bitcoin, holding 581,000 bitcoins worth around $63 billion, against annual software revenue of just $463 million. 

This success story has helped spark a trend. The Financial Times recently reported that, from the beginning of 2025, 154 public companies have raised or committed to raise a combined total of $98.4 billion in order to buy cryptocurrencies. 

These companies buy crypto with money raised on the debt and equity markets, i.e. selling either their stock, or their own interest-accumulating debt in the form of bonds. By acquiring digital assets, these so-called bitcoin treasury companies (BTCs) artificially increase their share prices and thus attract investment. Thus, while owning $63 billion worth of bitcoin, MicroStrategy’s stock valuation is $100 billion. So the company speculates on bitcoin, and investors speculate on its stock price – a bubble on a bubble!

In another example cited by the FT, web design agency The Smarter Web Company made a net profit of just £93,000 from January to April, but its market capitalisation is about £560 million thanks to owning £238 million in bitcoin. In the past, a horde of zombie companies were kept alive by cheap credit. As interest rates have risen, many – from unprofitable Japanese hotel chains to biochemistry companies – have turned themselves into crypto companies to stay alive.

Zombie tech companies are sustained entirely on the assumption that their highly volatile digital assets will continue to appreciate in value forever / Image: bfishadow, Flickr

Once hooked, the BTCs keep buying crypto in order to ensure continued interest from investors. They buy up tokens quickly to maximise their ‘bitcoins per share’, and investors pay premiums early on to indirectly own more cryptocurrency through their stock, in the hopes of cashing in in the future. These zombie tech companies are sustained entirely on the assumption that their highly volatile digital assets will continue to appreciate in value forever. 

This all resembles the practice of buying 'on the margin' in the 1920s, in which shares were purchased for a fraction of their value, with the remainder being borrowed, and the shares themselves serving as collateral for the loan. This meant that rising share prices netted huge returns, so long as they kept rising. But when the Wall Street Crash came in 1929, things rapidly turned into their opposite.

Evidently, the capitalists have learned no lessons from history. We also see echoes of 2008, in which reckless speculation on dodgy derivative instruments like collateralised debt obligations (CDOs) – basically bundles of loans and bonds – helped crash the US housing market. In an article entitled ‘Why bitcoin treasury companies are a fool’s paradise’, the Financial Times draws the same comparison:

“[CDOs] were, like crypto, a hyped asset class with little fundamental value […] As the fever peaked, CDOs were so hot that financial engineers dreamt up the CDO-squared — made from an amalgam of other sliced-and-diced CDOs, which in turn had sliced and diced the original ropey mortgages. Disaster, predictably, ensued [...] Bitcoin treasury companies are in a sense the CDO-squareds of the crypto universe.” (our emphasis)

AI mania

But the main thing keeping tech stocks booming has been the craze around artificial intelligence. As we have written previously, there is speculation going on in the sector, and much snake oil being peddled. Two-bit startups can get multi-million dollar valuations just for putting ‘AI’ in their names. But while cryptocurrencies are sustained entirely on speculation, investment in AI is of a different order.

The main thing keeping tech stocks booming has been the craze around artificial intelligence / Image: Grok

When the crypto bubble bursts, plenty of investors will lose their shirts and any exposed institutions will be in trouble, but ultimately, blockchain technologies play little role in the wider economy. With AI, the stakes are much higher.

The capitalists are desperately hunting for ways to revitalise their system, and betting heavily on this promising new technology. An arms race is also underway between the main imperialist powers to attain a competitive advantage, given AI’s perceived economic potential, not to mention its military applications. Governments are investing billions in AI, and the US has erected protectionist barriers around microchips and components necessary for powering the most advanced AI models, keeping them out of China’s hands.

Off the back of this, AI-focused companies have seen their stock prices skyrocket. Chipmaking giant Nvidia, for example, recently became the first company ever valued at $4 trillion. In fact, not only is AI hype sustaining the tech boom, it is sucking investment out of the rest of the economy. As the Economist reports:

“[L]ook beyond AI and much of the economy appears sluggish. Real consumption has flatlined since December. Jobs growth is weak. Housebuilding has slumped, as has business investment in non-AI parts of the economy [...] In other words, an economy-wide reallocation is under way: interest-rate-and energy-sensitive sectors are contributing less to growth, while AI investment contributes more.”

Eyewatering sums of money are also being spent on the vast data centres necessary to power the latest AI models, with Morgan Stanley forecasting total global spending in this field will reach $3 trillion by 2029. The energy requirements of these centres are enormous, which further constrains the rest of the economy by keeping energy prices high. US electricity bills have risen by 7 percent in 2025, partly because of the additional strain from AI data centres.

The full implications of AI, its level of integration in the world economy, and the consequences of this for our perspectives, are beyond the scope of this article. But from the point of view of the wider tech bubble, while there are huge profits to be made by trading shares in AI companies, their ballooning valuations are well in excess of their actual earnings. 

Sam Altman, the boss of the ChatGPT owner OpenAI, recently described some company AI valuations as “insane”. And he should know: OpenAI has never turned a penny of profit. Of the high tech companies that dominate the S&P 500, two thirds of their shares trade at 30 times earnings. A third trade at 50 or more.

In August, a blip was provoked by an MIT report that surveyed 300 publicly disclosed AI initiatives and found that 95 percent produced zero return on investment. This alarming statistic caused the NASDAQ to close down 1.4 percent on 20 August, while Nvidia’s stock fell by 3.5 percent in a day.

Part of the problem is that all this investment in research, development and infrastructure is not based on AI’s proven track record for driving profits, but its future potential. Capitalists in the West have operated on the assumption that simply throwing more money at increasing processing power will eventually bring the ‘holy grail’ of superhuman, multipurpose ‘Artificial General Intelligence’. But they are now running into the limits of 'scaling’, with increased processing power yielding diminishing returns when it comes to improved capabilities. The newly released Chat-GPT 5 for example has been criticised for being just as hallucination-prone as the last iteration, despite all the money invested.

Ironically, Washington’s protectionist measures to retain control over advanced AI chips have forced China to focus on utilising AI in ways that might be less glamorous or game changing, but are more immediately productive.

Sam Altman, the boss of the ChatGPT owner OpenAI, recently described some company AI valuations as “insane” / Image: TechCrunch, Flickr

For instance, AI is being deployed to increase the efficiency of Chinese hospitals, power robots in automated ‘dark factories’, and improve crop selection in agriculture, all at a fraction of the R&D cost directed by Silicon Valley towards chasing the AGI unicorn.

Already, in January, Nvidia had $600 billion wiped off its value in a single day after the Chinese company Deepseek revealed a Large Language Model (LLM) that performed similarly to its Silicon Valley counterparts, but was reportedly developed for just $6 million. The result was a panicked sell-off as investors lost confidence in the competitiveness of American-made AI. 

There are comparisons to be made with the Dot-Com crash in the early 2000s, in which excessive enthusiasm about the potential of the internet saw massive overvaluation of tech companies. At the peak of the bubble, the top technology stocks (Cisco, Dell, Intel, Lucent and Microsoft) accounted for 15 percent of the S&P 500.

Today, the ‘Magnificent Seven’ stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) make up more than a third of the S&P 500. Market capitalisation on the NASDAQ is also much higher than in the 2000s, equivalent to 145 percent of the USA’s entire M2 money supply.

The anarchic nature of capitalism, in which capital flows into any promising new venture to the point of saturation, means every new technology sees bubbles, speculation, and overinvestment. When the wave passes, most companies are swept away, leaving a few winners standing. When the Dot-Com bubble burst, the NASDAQ fell by a whopping 72 percent; plenty of individuals and companies went bankrupt. But the survivors (like Microsoft, Intel and Amazon) went on to become dominant in the current tech market.

However, there are important differences between the current situation and the Dot-Com bubble. Firstly, the level of investment and national prestige bound up in AI today eclipses anything going on during the 2000s. Secondly, the world economy is a lot more vulnerable today. 

The Dot-Com bubble constituted a ‘correction’ amidst a booming world economy. Today, capitalism is scarred by the 2008 crash and the COVID-19 crash, and is heading to a new crisis. Global debt today stands at three times global GDP. When this new tech boom turns to bust, it will be far more destructive. We will deal with the implications of this more fully in future commentary.

The irrationality of capitalism is such that powerful technological advancements, which should by rights help humanity reach a new golden age, exacerbate the underlying contradictions of the system. Meanwhile, myopic gamblers rush to enrich themselves before the next big crash.

This cannot continue. We need to put an end to all this anarchy and irresponsible speculation by imposing a system of rational economic planning under the democratic control of the working class.