Dot-com bubble - Business in United States of America

The Event: Rapid rise and sudden fall in the price of Internet sector stocks resulting from overvaluation and the indiscriminate distribution of venture capital
Date: 1995-2001
Place: United States
Significance: During the 1990’s, Internet-related businesses were viewed as a way for investors to make quick profits, and millions of dollars were pumped into nascent businesses. After the bubble burst and many of these businesses failed, dotcoms were regarded as bad investments. Ultimately, as the markets settled, it became clear that Internet stocks offered both good and bad investment opportunities.
The period from 1995 to 2001 saw a stock market bubble develop in the Internet sector. A temporary overvaluation of stocks in a particular industry is called a bubble because it acts like a bubble, which grows and then bursts. During much of the 1990’s, however, the growth in the value of Internet stocks was not seen as a bubble but simply as the energetic growth of a promising new industry.
Investors had become enamored with the industry. Following the rise of Netscape and its massive initial public offering (IPO), they were more than willing to invest venture capital in companies that had never made a profit. Some economists said that America was entering the era of a “new economy” in which the old rules of investing no longer applied. The fervor was also fueled by low interest rates and by day traders who bought stocks with borrowed money. Many companies that were formed at the time operated at a net loss to build their market share. In such a business model, one company would have to monopolize a niche to make a profit. The new companies spent their venture capital and then made their IPOs as quickly as possible to raise more cash. The public eagerly bought these new stocks. In 1999 alone, of the 457 IPOs made, 117 doubled in value on the first day of trading. The result was that these stocks became grossly overvalued.