To me the most sobering cautionary tale from the dotcom bubble is the story of Cisco. Cisco manufactured, in a very real sense, the physical infrastructure of the internet: the routers, switches, modems, etc. that directed the IP packets to their destinations. (To a significant extent they still do, though nowadays they have more competition in that area.)
Savvy investors piled in to the stock, reasoning that, while internet startups might come and go, the internet itself was surely here to stay. It was popular to observe that, in the California gold rush of the mid-1800s, the purveyors of mining equipment made it rich more reliably than the prospectors for gold.
Anyway the Cisco stock price peaked in March 2000, and to this day it still has not reached that level again. The savvy investors were of course correct in their belief that the internet would continue to be important, and that Cisco would continue to be an important manufacturer of internet networking equipment. But they lost money anyway, because once the euphoria had worn off the market consensus was that the stock just wasn’t worth as much as the price it had been selling for at the height of the mania.
Any parallels to hot contemporary stocks are left as an exercise for the reader — and I do not mean to suggest that history must always repeat exactly.
Ironically, if you look at Sysco's stock price during the dotcom days, it's often correlated with Cisco spikes because clueless traders would accidentally buy the food logistics company stock instead of Cisco.
Obviously you don't mean NVIDIA, because 80% margins on matrix multiplication will last foreverrrrr.
It won't last forever.
The question will always be: Are we in the 1995 or the 2000 of the dotcom era?
By 1995, Cisco's stock had already increased 6x since the start of 1993. If you bought at 1995, you'd 10x by its peak. Even after the bust, Cisco's stock was still 50% higher than it was in 1995.
The problem with Nvidia's stock isn't demand. The problem is that Nvidia makes something so good and so valuable that the US government has decided to nationalize them by dictating who they can or can't sell to. If Nvidia is freely able to sell to any country they want, their sales and margins would be much higher right now. The demand is that great.
Nvidia's "moat" is mostly in the form of software though. If AI succeeds in automating away software development, that actually seems pretty bad for Nvidia the company.
I don't think there are any defensible moats in AI. I see Ciscos everywhere in that industry.
If AGI is powerful, it will help competitors replicate that stuff. If AGI isn't powerful, why invest at such a high revenue multiplier?
The way I see it -- either AI is a bubble, in which case you'll lose your money. Or AI isn't a bubble, in which case the effects are fairly impossible to predict (and quite likely destructive to humanity, same way humanity was destructive to less intelligent species). Either way, it's not a technology you want to invest in. It's only in a narrow Goldilocks scenario where it's a good bet, and it's very unclear if we live in that Goldilocks world.
If AGI is powerful, everything will be thrown into chaos. Why invest in Meta when you can ask AGI to make your own Instagram app and acquire users? Why invest in Apple when you can ask AGI to make your own iOS? Etc.
Meta has an actual moat due to network effects. But yes, I think buying real estate, mineral stocks, etc. is overall a more effective and ethical way to invest for AGI.
I'd ask my AGI to iterate on a social app until it becomes bigger/better than Instagram.
If AGI is the reason you don't think Nvidia's stock is worth buying, then nothing is worth buying.
You're right that perhaps real estate/physical things will become more important. But whose to say AGI can't invent an asteroid mining industry and we get unlimited minerals?
an AGI is not going to be able to create the hardware (unless you imagine that there could be some sort of ai controlled replicators that could assemble anything out of atomic units).
And in the new world of commoditized software, branding becomes even more important. After all, nobody ever got fired for buying IBM.
>an AGI is not going to be able to create the hardware
I'm imagining an LLM agent that places an order with TSMC, just like any other design firm would.
>And in the new world of commoditized software, branding becomes even more important. After all, nobody ever got fired for buying IBM.
Seems doubtful. If the cheap option works just as well, why would you pay a bunch more just for the brand?
I don't think brand name alone will sustain anything close to Nvidia's current margins. Look at the "net margin" for industries that are brand-driven such as Apparel, Auto & Truck, Beverages, etc. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile...
If an industry becomes truly "commoditized", brand ceases to matter. Do you know which farm grew the carrots you buy at the grocery store? Do you care? Probably not. That's because carrots are a commodity.
I'm not claiming full commoditization will happen. But the closer we get to that, the more profits will drop.
Why not? AGI can design the chip, send the instructions to TSMC's AGI, and you'll get your chips.
The point is that saying AGI is the reason you shouldn't invest in Nvidia stock because AGI will remove the CUDA moat is just not reasonable. You might as well not invest in anything in that world since AGI can replace anything.
Why not invest in the company most likely to power AGI? If you're anticipating AGI, I think it'd make sense to put at least a bit of money into Nvidia/TSMC.
"AI" isn't even profitable, it is neither good nor valuable outside of for creating a massive asset bubble. The export ban was made by old dinosaurs that don't understand the tech and is more about China than "AI".
I’d generalize that somewhat to say that LLMs are good where you can cheaply verify the results relative to the cost of being wrong. A lot of scamming is already structured around most people ignoring their messages, and they don’t support anything so it’s just a question of whether they lose more potential marks than doing it manually.
(This is also why coding is one of the areas where they perform best: the cost of structural validation is low and there’s a human in the loop verifying the behavior)
To me, it is the easiest trade in the world right now. Long NVDA on a market volatility spike. "AI is dead", "the high is in".
It is obvious to me we are going to get to "AGI" in this bull run. Maybe it is complete hype and bullshit marketing but we are going to get to someone releasing a model they claim is AGI. That is really why I don't see what the point is in comparing this to the dotcom. Dotcom was really a bandwidth problem that just needed to get sorted out because my telephone line was basically busy from 1995 to 2001. There wasn't this AGI narrative that once crossed you can price in any valuation you want.
There is a huge bubble and irrational exuberance in quantum computing stocks right now. Those have nothing to do with reality. That looks like dotcom level stupid.
NVDA is not even a bubble, it is just a bull market.
>Maybe it is complete hype and bullshit marketing but we are going to get to someone releasing a model they claim is AGI.
>...
>There wasn't this AGI narrative that once crossed you can price in any valuation you want.
And due to the strength of this "bullshit marketing" "narrative", you can be sure there will be a greater fool to sell your shares to. Where have I heard that before?
A more realistic bullshit-marketing scenario: OpenAI releases a product they claim as "AGI" purely for marketing purposes, everyone gets disappointed as they realize "this is it?", share prices drop.
The story of Cisco illustrates that moats matter. There aren't any in AI, as far as I can tell.
If AGI for software development is actually invented, one of the first uses will be to wreck Nvidia's moat.
I think you're not naming entire nation states, given the way the Chinese are splashing money around there it looks like there is about to be a flood of chipmaking capacity hitting the market and a lot of that will end up competing in matrix multiplying.
Although I hear VCs are working on an algorithm where they burn money directly and the smoke patterns represent the solution to the multiplication. That might keep the margins high.
> Although I hear VCs are working on an algorithm where they burn money directly and the smoke patterns represent the solution to the multiplication. That might keep the margins high.
This has been bothering me for some time now. It’s rather obvious to me, as an engineer, which startups are well positioned and which aren’t… Do VCs really have no standard for due diligence, do they really just not care, or is there something else at play that I’m missing…?
> is there something else at play that I’m missing…?
Depending on the stage, investors don't care about any of the details except for the founders ability to raise the next round and their probability to IPO at a later/advanced stage. The stock is the product and whether you are selling a real time machine or a crystal is irrelevant.
Which is not that "insane" really. If that's how money is being made, and investors are in the business of making money, then that's the path they are going to take.
> The stock is the product and whether you are selling a real time machine or a crystal is irrelevant.
This is the right answer, some people think that the dot-com bubble and mortgage bubble is something for investors to regret, when in fact they made such a ridiculous amount of money they're just searching for the next bubble. Not the next great product.
Markets (like most human systems) aren't really 'supposed' to do anything: they've just kind of evolved as various participants in the market have found them useful for different things, and competition between systems has selected for characteristics that allow them to survive. Economists mostly describe systems, ideas like efficient markets are more of a post-hoc hypothesis for why the system survives, not an up-front designed attribute of the system that was desired when it was set up.
(which basically means that if the conditions mean that the optimal strategy in the market is to basically just run pump-and-dump 'greater-fool' scams on everyone else then that's what you'll see occur)
Different to investors are chasing different dreams.
As an exercise, imagine you have a portfolio which will in a typical year lose around 1.2% to the tax man for capital gains. Rather than accepting the guaranteed loss of taxes - you take ludicrous bets on asset classes where you can be guaranteed to book a loss which could be harvested for tax purposes, or will return 100x your investment (at which point you don't care about the tax man).
Viewed in this light, the VC preference for burn bright and burn fast startups makes sense. The worst case scenario for some LPs would be to still have money leftover.
I don't understand how this adds up. If you're losing money to the tax man you're still making money overall. Now, you could say 'screw it' and put the money you're making into long-term risky bets, but either they don't pay off, and you've just lost money, or they do pay off, and you owe even more tax, with even less efficiency. If you wanna gamble, you can gamble if you want, and the supposed idea of VC is that if you take many risky bets you'll be able to win on average, but it's not tax-efficient at all because you tend to win all at once.
(As a general rule of thumb, I'm deeply suspicious of any 'it's a tax write-off' explanation for people losing money: its extremely rare for losing money to make someone better off overall. It may be advantageous for them to move around where and when they say they are losing money, as you'll generally be more tax-efficient if you make money consistently and through activities in areas which are not as highly taxed, but it's not generally a useful strategy to light cash on fire to reduce your tax bill: you tend to be out of more money than you save on tax)
Valuations aren't attached to reality. Look at Crypto, NFTs, Quantum computing etc. You can have a completely non-viable money pit but if it hits the right hype cycle mix you can make huge exponential gains. It's just about what other people can be convinced to invest in. Right now the US tech sector is pretty much the only game in town to dump money and hope for huge returns. Previously it was "emerging markets" but right now there's a lot of regulatory overhead limiting gains in most EM countries.
You are looking at it the wrong way imo. It's like when developers build a product and only focus on the technical side and neglect/underestimate the sales side or when they buzz about the language used to build something.
VC don't really care about the startup's product. Your pixel machine. That's a side effect.
Growth. Exit. IPO. Those are the 3 words they want to hear.
Those Chinese companies will have to fight our western champions, TSMC in a green trenchcoat, TSMC in a red trenchcoat, TSMC in a blue trenchcoat, TSMC in a purple trenchcoat, and TSMC in a yellow trenchcoat.
Microsoft, Meta and Oracle already spend billions on supposedly completely inferior(according to the Nvidia cultists) AMD chips. Nvidia is the biggest bubble in human history.
PE isn't a cheat code to rational stock valuation, it's the "nothing ever changes" assumption dressed up in a formula. PE looks at past earnings, while the price of a stock buys its future earnings. A modest PE on NVDA says "I expect datacenter revenue to continue" while a modest PE on TSLA would say "I expect robotaxi to fail." These are fair opinions to have, as are their opposites, but if datacenter revenue collapses then today's modest PE won't save NVDA and if TSLA can pull off robotaxi then today's high PE will be vindicated. Stocks are all about Future Earnings, but you can't put that in a column and sort by it so we have PE.
You can certainly have success while avoiding high PE stocks, but you are on a site about startups and your name suggests you work in the tech sector, which are both places where high PE often does make sense and it pays to be familiar with the reasons.
> a modest PE on TSLA would say "I expect robotaxi to fail."
No. Just having competition is enough to destroy the expectations on TSLA.
And realistically, they are abut last on that race, being thrown out of track about a decade ago and never managing to make anything work since then. So, yeah, betting on no competition is a very weird option.
The more interesting dynamic with Nvidia though is that most of its revenue is actually fueled by bubbles as well. Teslas earnings are much more grounded and natural.
I think you misunderstand that comment. Tesla may be hopelessly overvalues, but their revenue may grow in future. OTOH Nvidia's revenue may have peaked.
Maybe so. Their valuation coming down to earth would certainly ripple. Whatever precedes that fall, it seems unlikely that revenues would remain unaffected.
In all, it’s unfortunate that the US’s most prominent electric vehicle manufacturer is wrapped up in so much noise. Competition is only going to stiffen.
how is their revenue gonna grow in the future when they don't have an edge in their main core product. Batteries are by panasonic. while BYD makes its own batteries.
Tesla has no moat. At least Nvidia has CUDA
I don't why this comment was downvoted. You raise an important point. I also noticed that you (carefully?) made no comment about Telsa's stock price. Instead, you only focused on their earnings -- which are excellent for a car company.
It got downvoted for not parroting “Tesla bad” even if it didn’t claim anything to the contrary and is simply observing one fact — Tesla’s earnings being great. That’s not acceptable apparently.
> And I can't name several customers with very deep pockets working on their own chips to squeeze/compete with NVDA.
Google, Amazon, and Microsoft all have custom ASIC and TPU projects in their pipeline, and what holds true today might not hold true in 5 years.
A major reason Nvidia was able to do so well was because of technical outreach by donating their GPUs to programs all over the US, building a strong albeit self serving OSS relationship, the CUDA ecosystem, and the acquisition of Infiniband.
Much of these advantages can be nullified by competitive margins and pricing for hyperscalers designed and owned hardware.
Cisco was hit by this same situation as server vendors like Dell began integrating their own in-house networking functionality within their servers, and Dell itself was outcompeted by cloud vendors.
Agreed, the only thing I'd add would be AMD's self-sabotage. Pretending to have compute capability (see also "right around the corner") for over a decade when it was actually so broken as to be sub-viable was an enormous own-goal that they doubled down on when they exited desperation mode without rehydrating the teams and tripled down on with the RDNA/CDNA split.
By rights they should have been fast followers, but they stacked the critical mistakes so high that frankly I think NVIDIA's subsidized GPGPU classes are the smaller part of this story. If the people struggling to get OpenCL to work had been able to get it to work (on other than NVIDIA GPUs lol) the situation would look very different today.
Nvidia didn't innovate into AI. Developers used their gaming cards for AI. They kinda got into that situation by pure luck. I wouldn't trust they will be able to pivot into the next big bubble if it's quite outside their area of expertise.
Part of this was that sales for networking gear actually did tank because there were so many companies going under all at once that suddenly weren't buying any more gear.
There were so many companies going under lots of people I knew ended up with racks in their house with servers from work that they got for free.
You see different versions of the four horsemen of the internet but the one I remember (and I can find lots of references to on the internet) is: Cisco, Sun, EMC, and Oracle. And, indeed, Oracle is the only one continuing to perform whether you like them or not and whether startups use them at this point.
With respect to Cisco specifically (and Intel) there was also a huge optical networking bubble.
While Oracle definitely benefited from the dot-com era, my impression was that, unlike the other three, its core business has always been banks and other large enterprise companies.
That core didn’t suffer much during the dot-com crash so Oracle was in a good position to do things like vacuum up the pieces of Sun.
Don't disagree. That was the common metaphor? But Oracle was less embedded in the internet ecosystem even if Sum was enterprise too to a large degree--though was trying to be more startup/internety given their roots.
Linux ate Sun, I ran a sun lab, had a few sun workstations at home, but really preferred my linux/BSD boxes. BSD/Linux ate into Cisco. You could buy multiport ethernet cards, throw it into a linux PC and have your own router/firewall that offered more features than Cisco. MySQL would have eaten into Oracle, but their stupid MyISAM got in the way.
MySQL would never have eaten Oracle. Oracle had
/has a huge installed base of corporate/government customers who are risk adverse to switching out their database for fear of breaking critical systems.
No one building a business today would ever choose Oracle, but their hold on legacy customers is pretty strong. They will probably die a slow death as their customer base dwindles if they can’t pivot.
Well Oracle bought Sun so it’s tough to see your argument but I love the EMC addition. I know many who retired from there and are still retired . Their sales team printed money
That acquisition came later because dot-bomb (and, yes, the rise of Linux) helped crater Sun. It's not my argument anyway. It was a popular theme at the time even if the company names have been repopulated in many later tellings.
I worked for EMC very briefly (like for a few months after close) via an acquisition.
but a great bet as the bubble was bursting was not mining equipment for the prospectors, but instead energy drinks for the coders. Specifically $1000 invested in Monster Beverage Corporation (MNST) would be worth $1,187,849 today.
same $1000 invest peak dot com on March 10, 2000
Apple (AAPL): Value today : $266,862.
Nvidia (NVDA): Value today : $882,065.
Amazon (AMZN): Value today : $256,482.
Personally I find it really fun. Helps keep chasing money in perspective.
Could have, should have, would have.
Company I was working for didn't go public until the end of March that year. No horror stories from me, was a fun time to be working, lots of great memories.
Investing in a market index today is even easier. Instead of doing historical research on thousands of stocks, you just compare the expense ratios of a handful of index funds and pick the lowest one.
I don't disagree but even modest bets in specific companies have done pretty well over the past couple decades or so. Yes, they're gambles but small-ish bets for bigger payoffs than NASDAQ. (Though that's been pretty good overall and probably safer in aggregate.)
It’s hard to know few decades ago which companies to put substantial money in. It’s hard to know which companies will perform in the next few decades. And if you are wrong in your bets, there goes a few decades of your life and you can’t rewind the clock to try again.
If you’re retirement investing there’s there’s no need to make substantial bets in individual companies. 90% in index funds will get you to a reasonable retirement, 10% in something that looks interesting has minimal downside and significant upside because the value of money is non linear.
Assuming a buy and hold strategy at worst all your bet goes to zero which is unlikely, but there’s many companies that go to 100+X and hitting them can meaningfully boost your retirement. Gateway computers vs Dell wasn’t an obvious choice, but that’s a coin flip with huge upsides. Buy it in a given year and ignore it for the next 20, no you’re not going to time the market but you would see most of the upside.
I wouldn't fault anyone for just not doing individual investing. But, yep, if you're interested in putting in some time and think you have some insight into a particular sector, putting 10% or whatever into some individual companies you think are particularly interesting isn't a bad strategy. Some will flame out but maybe you'll hit one or two gems. It can also make sense to clean house now and then. I did that a couple years ago and I'm glad I did.
- mainstream investment (passive or active via trusted professionals and with balanced approach); and —
- making non bank-breaking direct stock investments in some really promising early stage public companies (again, with professional help)
Without the latter the return would be just that — earning a return; it won’t even come close to wealth or have a possibility of that.
PS. Yes, those professional help won’t have a crystal ball, but they can tell you from an average company to good to just okay to absolute shit via things like their books, governance, returns, plans etc.
Yeah. AAPL could have been a huge win for anyone. I actually did pretty well but nothing like the step level function that investing a bit earlier or bigger could have been. And there was also a bit of a drop when a lot of people could have doubled down but got out. But there's a lot of luck involved. (And I've since diversified most of it to money managers and taken the tax benefits.)
In the case of APPL it is fun to think about what the money I spent on a computer that year like a Power Mac G4 could have been worth today if I had invested in the stock instead.
I remember local developer group chats about BTC / ETH in early 2010s. We met weekly next to local restaurant bar. I like to calculate what if I had skipped a meal or a drink one night and instead bought BTC or ETH with the that money what it would be worth today.
Some AAPL bets were pretty good ones. BTC seems more like a real gamble. Though obviously back in self-mining days even if it seems not much different from SETI at Home. And your hard disk would probably have crashed at some point. Or you would probably have been ripped off.
Money you almost made hurts equally as much as money you had and then lost. (That's Munger. In my opinion big money you almost made hurts more than big money lost.)
Apple wasn't doing so great in 2000. Its "PC" market share was ~2%. Jobs had just come back a few years earlier and MS made a large investment, but neither the iPod nor OS X had come out yet, so it was quite a turnaround story.
In the earlyish 2000s, Apple started to look interesting as a consumer electronics company even if it wasn't clear they were committed to it. And the whole mobile trend wasn't obvious to a lot of us at that point.
I talked to them as an analyst in that era and they were still spending attention on enterprisey products like Xserve.
And even the initial iPhone in 2007 wasn't clearly a game-changer. It was the 3GS that really made a lot of people take notice.
this is a common misconception, which I think arises from the ideas of index investing. one must remember that while the index itself increases over time, many of the names on the index in eg the year 2000 simply don't exist anymore; consider companies like Kodak Eastman
if you held all of the energy drink companies including a placement into monster for 25+ years you would indeed make money on the 1-2 winners and end up net ahead.
But if you missed monster, you could very easily have just bought a basket of dog companies that all completely fail and the money is gone
The difference between Cisco and Nvidia is that Cisco's P/E ratio exploded out of proportion to their business while Nividia's revenue and profit are increasing exponentially. But people will probably tank NVDA -95% anyway because "bubble popped".
There is certainly a boom for Nvidia right now. To justify their PE though Nvidia has to keep increasing their already massive revenue to completely ridiculous and unsustainable levels. The bubble here is the amount that big tech is spending on unprofitable "AI" simply to keep their stock prices from collapsing.
"AI" is unprofitable and almost completely useless. With capex demands ever increasing just to push the diminishing scaling returns further, this is not sustainable. Their revenue will collapse in the upcoming recession and you'll see it's PE balloon into the hundreds.
AI is in the very early stage of an industry where competition is intense, therefore, profits are harder to come by. Eventually, AI will be immensely profitable. Calling LLMs useless is just as nuts.
> The moat is in data, training algorithms, compute capacity, and UX.
That’s a very shallow moat, then. I mentioned DeepSeek because everyone insisted the American giants had huge leads over the rest of the world until the day they got a big reminder that three of the things you mentioned are commodities and UX isn’t a moat.
I've still never bought a single physical product from Amazon.
Only AWS, which I stopped using when they decided to raise their price I'd already locked in and prepaid for, which should be unlawful. Then I realized every traditional provider is much cheaper.
> Any parallels to hot contemporary stocks are left as an exercise for the reader — and I do not mean to suggest that history must always repeat exactly
Crashes come amidst collapsing expectations. The structural risk tech currently faces is a collapse of American tech companies' global TAMs due to trade policy. (Think: the market constriction Tesla is seeing in Europe, but across more companies and markets.)
I worked at Cisco from 94-99 in the Morrisville, NC center. The salespeople there did not even have to really work and they were making bank. And so was I. Until my mental health collapsed and was "mutually terminated. Soon after I left I decided to sell all my Cisco stock and it was just in time, 2/10/2000. I wish I could say I did it because I was smart but I was just tired of the whole scene.
But what is happening now, IMHO, is way worse, and much different, than the dot com bust. The Yemen offensive might be a pre-text for, or start, a war with Iran.
US always bombed countries in middle-east/africa, that's nothing new and it didn't impact the world order/economy significantly. On the other hand if US invades Canada... that's WW3.
>once the euphoria had worn off the market consensus was that the stock just wasn’t worth as much as the price it had been selling for at the height of the mania.
I've seen too much in the past 4 years to think that euphoria is anything but a convenient and incomplete explanation for things like, "Cisco's price hit its high 25 years ago and never since." More is happening, driven by the fact that there's more ways to make money on the movement of a stock than it going up significantly in price over time.
I don’t know any investor who puts 100% of their money into a single stock, nor any who lack recurring cash flow to buy more of what they already own. While their 2000 purchase may not have realized any gains, they’re likely ahead thanks to dollar cost averaging and dividend payouts.
This was super common in the dotcom era because day traders were hanging around the same message boards creating what we now call meme stocks. Many of them had to lock in those loses when they hit the financial crunch of the dotcom crash or the later real-estate bubble.
I had a cautionary example from some sales guys I worked with, who got caught up in margin calls – one burned the wedding money his wife had ear-marked for a house. I had avoided stocks like Cisco with wild P/E ratios and my portfolio made good returns throughout this period because it was diversified, but if I’d been willing to bet higher on Apple I would’ve retired early so I appreciate the allure.
Had the dotcom bubble not burst I’d likely be an attorney. I’d accepted an offer at a law firm in San Francisco to work in their Securities practice, largely taking companies public or doing M&A.
In March of 2000, the firm called and said: “Good news bad news. Good news: you still have a job [unlike a lot of my law school classmates]. Bad news: we don’t need any more Securities lawyers, but we have lots of room in our Bankruptcy practice.”
Being a Bankruptcy lawyer didn’t sound like fun. A law professor’s brother was starting a B2B startup. He offered me a job. The startup was a colossal failure, but I was hooked on the idea of a group of people starting something from nothing.
Next ~8 years were painful with lots of ideas that went no where, but it all worked out. So, in the end, always remember that but for the dotcom bubble bursting, I’d be keeping track of my time in six minute increments.
Always remember that without the dotcom bubble, eastdakota would be counting in 6 minute increments :P
Sincerely, can you say more about the 8 years of pain? I’m curious how you navigated that, especially with/without relationships, family obligations, “runway” restrictions, etc
Edit: looking at the profile, eastdakota is CEO and cofounder of CloudFlare. There are probably interviews and Wikipedia pages that address my questions.
Those 8 years were painful. To make money, I worked as a bartender, an LSAT test prep instructor, as an adjunct law professor at a law school that was so bad it doesn’t exist anymore. I remember 4am at the bar in Chicago where I worked, cleaning up some patron’s puke off the floor, and thinking: I need to figure something else out.
All the time I was trying to find an idea for a startup. I still had the lawyer bit flipped on so lots of things I tried had a legal/regulatory bent. That was definitely a blind spot that held me back for a while.
The fun YC-related story on the founding of Cloudflare is that, before YC, Paul Graham used to host a conference called the “MIT Anti-Spam Conference.” He invited me the second year of the conference (2003, I think) to give a talk on how to write effective anti-spam laws. The very technical crowd was polite to the lawyer. I met a ton of interesting people, many of whom played outsized roles in machine learning over the next few years, including John Graham-Cumming, now Cloudflare’s CTO. Paul invited me back the following year saying I should do something similar.
I was pretty sure the audience wouldn’t tolerate the lawyer giving another talk about regulation, so I went to a young engineer on the team of the (bad) startup I was working on and suggested we build a system to track how spammers scrape your email addresses. He agreed to build the backend if I built the front end (which I largely stole from the hot startup of the time: LinkedIn). That turned into Project Honey Pot, which I gave a talk on at Paul’s conference. Project Honey Pot gave the initial seed of an idea that turned into Cloudflare. And the young engineer was Lee Holloway who cofounded Cloudflare with me and Michelle Zatlyn.
Lesson to me has always been even in times where you don’t feel like you’re making forward progress in your life and career, find ways to stay involved with interesting people and projects and chances are they’ll pay dividends in ways you don’t expect later in life.
I clearly remember walking back to Paul’s house in Cambridge after the 2004 conference where I’d presented Project Honey Pot. I believe he and Jessica had relatively recently started dating. They were talking about startups and how people didn’t understand how they worked. Paul suggested they should teach a class at MIT. And that, of course, is what later turned into YC.
There were other dramatic events that evening in Cambridge that I think sharpened all our minds and made us appreciate there’s no time like the present, but I’ll leave that story for another day.
Damn, what a turn of opportunities from just saying yes and showing up (and obviously a ton of hardwork and sacrifices). Thanks for sharing!
I can't resist ...
> There were other dramatic events that evening in Cambridge that I think sharpened all our minds and made us appreciate there’s no time like the present, but I’ll leave that story for another day.
> ... appreciate there’s no time like the present ...
The present is now! Some of us are dying to hear the story.
Definitely. I think this is true of the internet in general, we have an amazing ability to communicate with almost anyone, even busy experts in niche fields, if we just make/ask something that interests them. I don't think I appreciate that enough.
Maybe, although the people just getting into the field probably aren’t making the fortunes and there wouldn’t be the satisfaction of building something real.
I've been keeping tabs on NVidia’s venture arm. The arm seems to invest massive capital (hundreds of MM) in credible startups focused on compute scaling. These startups then spend back on NVidia chips at a 98% margin. I'd guess that they get back at least .4 to.6 dollars of profit on every such transaction in direct payment. If their are other investor partners, they could get back more than a dollar in profit for every dollar of investment.
While this is a great deal where everyone wins… it can cover unsustainable practices in the market. They can grow revenue like a fractional reserve bank - which would unwind rather quickly if the venture arm ran into trouble.
I graduated in 1999 and probably should have stayed for grad school. I had good enough grades my Alma Mater was basically sending me letters my senior year "Hey you're just about guaranteed to get in if you apply!" It's hard to say as if I'd just gotten a master's I would have been getting out in the middle of the crash (bad) but if I'd stayed through getting a Phd I would have had a very different traectory.
But the whole .com boom was way too exciting. I knew lots of people who dropped out. I started out working at Cisco but then left to go to a networking startup and got there just in time for stuff to start blowing up. When I left Cisco the assigned Financial Advisor I had a Morgan Stanley recommended I take a loan for something like $200k to take my options with me or something. I was like 24 and had almost no savings, there was no way I was going to do that. Cisco ended up tanking from 200+ down to the 10-20 range months after I left IIRC. I remember telling a co-worker who got laid off at the same time that I felt stupid as I had spent a lot of my earnings paying off my car I had bought brand new and I also had a motorcycle. He remarked he had kept driving his 20 year old Honda Accord but had no more money than me because he'd lost everything in the stock market crash.
As others have said 9/11 was some kind of weird marker for a lot of us that it was all over. The company I worked for made it about another year after that but I have vivid memories of everyone doom watching the news in the kitchen at work before the CEO came and told us to go home for the day on 9/11. I went home and went out and rode my bicycle all afternoon where I had no way to get any news, it made me feel better.
When I got laid off it was like every single one of my friends was laid off too. All of us at once, and it wasn't layoffs, it was companies completely going under.
There was a lot of malfeasance too. I knew people who had jobs where there was almost zero work as the company was a borderline scam. People were either playing video games at their desk all day waiting for management to figure out what they were going to work on or they were studying for their next job.
I was super lucky. Both my roommate and I got laid off at the same time, we ended up breaking our lease and going separate ways. I lived with my parents for a while, but I only actually was laid off about 6 weeks before finding a contract job. Neither my finances nor my career really took much of a hit, but my confidence took a major hit that realistically took 5-6 years to really come out of.
There's a literal aspect of the dotcom era that I miss, the literal dotcom as part of the domain and even company name, the branding, like amazon.com or booking.com.
(Booking.com still has that, which is why they don't have to spend all their money on Google Ads and beg Larry Page to let them have some money for themselves, like certain other online travel agencies.) I see dotcoms all the time on planes, ships, buildings. Realworld businesses seem to understand the power of reaching customers directly. But when I see an ad for a new startup, it's usually the company name and two app store icons.
I used to know an accountant that worked for Booking.com. You don't have a clue how much they had to pay to Google every month for ads. Literally a fortune.
The thing is: people want to go somewhere, e.g. to Rome. Next thing they do is, type 'hotel in Rome' in Google. Google serves them a couple of paid links, and they check only the first couple of them.
I wish someone would write a book about the dot-com bubble. It's long enough ago to be interesting, yet recent enough that most of the people involved are still alive and available for interviews.
I remember the years leading up to it. I was a kid really (okay, beginning my 30's) and my games were being published by a small company in California. At the trade shows I would often see this guy who was a friend of the publisher who was an amateur investor.
Every time we would catch up with him he would rattle off all the stock symbols he had bought that were on fire and making him bank. For my working-class upbringing, this market stuff was a strange world. He might as well be talking about pari-mutuel wagering (whatever that is).
Some years later when I heard that Netscape was about to go public I decided to see what this investing thing was all about. At that time there was a brokerage in downtown Lawrence, Kansas where you could pay a fee to place an order on a stock. Me and a few other nerds that had never invested in the market before each put a few hundred dollars we had toward Netscape.
With the stock priced at something like $28, I think I placed an order to buy if it was below $40 or something like that. By the end of the day I had learned that Netscape opened at over $40 and, while it dipped mid-day at some point, it never dipped quite below $40 and so I owned zero shares. A near miss?
So it was my first step in investing (or misstep). There would be more (missteps that is).
It was only years later when I was wiser that I realized that the guy who was picking the winners so well back in my trade-show days couldn't really lose — all the stocks were going up.
This was a wild time to begin a career, and I was just dropping out of college, having been the class of '99 but delayed a semester already due to bad work/life balance. I was self-teaching in web and systems programming and generally doing things on the internet, had a good grasp of things technically, but had no grounding in finance, business, stock options, or any of it. Everywhere around me seemed like opportunity, and Linux seemed somehow related. I even was supposed to have stock options in VA Linux[1] due to my paid work there, but that didn't pan out in the end. I didn't yet know how the internet would change everything, but it felt like it was definitely happening, and somehow that meant everyone involved would get rich. The media story didn't help. I wouldn't change any of it, though. I did it for the love of learning and still do.
I agree with all that. Dot-bomb was a nuclear winter like nothing tech has seen since--certainly including today. I was lucky enough to almost immediately land something through someone I knew and, if it didn't pay a lot of money, it was a decent (and mostly enjoyable) living for a number of years. But a lot of people I knew basically dropped out of tech and some probably never again had solid jobs.
And, yes, it also crashed any tech-heavy investments that took years to recover to their peak levels assuming they recovered at all. A stock I owned through options at one former employer were a source of tax write-offs for years. Probably led me to be a bit too conservative with such things. Eventually they got acquired through various complicated transactions and I did "OK" after something like 15 years.
> Probably led me to be a bit too conservative with such things
Those who graduate into recessions have crimped lifetime earnings compared to those who graduate into expansions. I wonder to what extent it's lost income, and to what extent it's a more risk-averse attitude.
I don't know. For me, it was mostly don't double down on my own company stock or maybe even (at the time) more aggressive funds generally. It's not like I retreated into Treasuries. But I still did OK from the more aggressive investments because (maybe luckily?) they did pretty well.
I didn't really graduate into a recession but I felt I learnt some lessons in dot-bomb (when I was probably almost 40) which was a decent way into my professional career. It was a period from the 80s when new grads in tech weren't earning anything like the incomes that at least some Silicon Valley copanies were paying if that was there thing.
I worked with some folks like that. They emphasized always do same day sale, don't sit on the stock after exercising. They had massive tax bills, because they exercised when the stock was flying high, but didn't have enough cash to pay for it. The stock itself had cratered so they couldn't raise money that way.
I don't remember the details. I had bought a (modest) vehicle with exercised gains (and maybe employee stock purchase). Don't remember the residual tax impacts being a big factor in general--may have been timing of some sort. But a $100 stock went to about $4. Went back up a bit and then only became somewhat OK through various subsequent acquisitions and spin-offs. But, yeah, a lot of people got clobbered when they took profits and then held onto the stock--and other scenarios like you say.
When I left not long before dot-bomb, I'm glad I didn't go for all the stock options they were offering me but I had already made the decision to leave. The company I went to cratered but, as I wrote, someone I knew picked me up.
But, yeah, making it through dot-bomb was incredibly lucky. The situation in tech broadly may not be great today but it's not like 2001.
I was somewhat early in my career when this happened. I was working at a small telecommunications company when the crash hit. Just about everyone got laid off, though with decent severance. Managed to make that last until I got another tech job almost three months to the day after my previous employer went belly up.
It was a strange, scary time. Not just companies pretty much vanishing overnight but also a lot of people losing their jobs. Not all of them were as lucky as I (and a few others I knew/worked with) was; they couldn't find anything in the industry for a long while. Some abandoned tech. Others stuck it out.
Never want to go through anything like that again!
That one hit me hard. I had just quit my job from a prestigious company the previous year to pursue my dream with two friends of building an internet related company and just a few months after we launched the market tanked. And it tanked so hard that we practically went out of business a year later. The problem was that the web back then was so fragile as a business case that once the bubble burst a lot of companies lost interest in investing in it.
Nice timing, although the market crash that is just about starting right now is more due to lack of functional US market regulation (similar to 2008, but worse).
No the crash was coming this administration just accelerated it. Trillions of $ of government debt and private debt is up for financing at 3-4 times the interest rate.
Maybe - i've been reading that sort of permabear "the economy is about to crash because of obvious reason X" for at least 15 years now. I listened for a time sadly - it cost me a lot of missed investment growth. Eventually they'll be right, but haven't been very predictive.
However, the deliberate economic self-destruction being unleashed by trump and friends feels like a very different flavor of cause.
I'm a big proponent of the bear case, but if you factor in dividends [0] pretty much any time in the last century has nominally been a good time to invest in the S&P 500 even if the first few years aren't optimal.
The bear case is generally "this will cause a crisis, then the government is going to print money, hand it out to asset owners & lump taxpayers and citizens with the real costs". There has been a reasonable expectation that shareholders will come through fine since the '08 crisis firmed up expectations about how the government will handle problems. I don't think there is an expectation any more that the S&P will go down in nominal terms. To argue that it will someone has to come up with a theory where the Fed doesn't get involved. There have been multiple major crisii and if anything US stock market performance is the inverse of how the economy is expected to perform. For example, COVID was a big winner for shareholders and asset owners despite obviously being an economic catastrophe.
Economists have predicted 9 out of the last 5 recessions, as the saying goes.
Usually even if this it the case you don't necessarily want to pull out of the market, but buy into the dip. Unless you seriously think the stock market is going to be wiped out for years, buying the dip means you have a large position when the market starts recovering.
Most non-institutional investors rarely just have cash lying around. My assets are tied up in the market. Same as it's dangerous to try to time the top of the market, it's dangerous to try to time the bottom. I tried in a modest way in 2008, and it took me a decade to recover on those stocks.
US exports make up 11% of GDP. Of that 11%, some fraction is facing retaliatory tariffs.
Considering the DJIA went up 4,000 points from Dec then crashed 4,000 points in Jan, one should be careful assigning cause when it did it again from Jan to Mar.
I was honestly shocked that both the Biden admin and corporations were able to hold this off in 2023-2024 given the huge debt loads held by everything.
The massive photo and site header of this site are fun but distracting when reading on mobile. Removing the top photo and removing or minimizing the top header would be a nice change for readability. I’m not sure what the SEO recommendation would be though.
"The aftermath of the dotcom bubble didn’t just turn dotcoms into acquisition targets. Established tech companies became acquisition targets themselves. In some cases, they even sought out acquisition as a matter of survival."
My family and I thrived during the pandemic. We made a lot of money, we sold our house and Airbnb'ed around the US, including Hawaii. It was an amazing time for us.
The years 1996 to 1999/2000 feel to me like I could go back and live them 20 times over, each time different, and still feel like I would look back with longing at all the things I missed out on and wish I could go back and relive/redo/take-a-different path.
I haven't had a feeling anything like that since about any time. I know it's probably in large part because of my age at the time (early 20s) but there was also just so much going on and the feeling was so intense, and youth culture was so on fire, so much energy. And in our tech industry, where I was just starting to find my foothold... there was this feeling in technology like if you just found the right combination of tools and ideas you could really be at the forefront of something new.
Dropped out of my BA in philosophy to join the fray and write code. Weekends full of raves, neat parties and music, meeting all sorts of people, and feeling like tech was part of something progressive and world changing in a positive and utopian way rather than ... this place where we are now.
The .com financial crash definitely exploded the euphoria. But more than anything 9/11 really was the thing that let the air out of the balloon for good.
Sept 12, 2001 I think was the beginning of this current era of paranoia and fear.
> The years 1996 to 1999/2000 feel to me like I could go back and live them 20 times over, each time different, and still feel like I would look back with longing at all the things I missed out on
I was about 8-12 years old at that time, so I just caught the tail end of the birth of the computer revolution. While I'm very glad to have had even that experience, I always feel jealous of my fellow nerds who were born about 10-20 years before me and really got to experience those early days.
Bliss was it in that dawn to be alive,
But to be young was very heaven!
— Wordsworth, _The French Revolution as It Appeared to Enthusiasts at Its Commencement_
I love your description of this heady time, which matches the way that I remember it. Surely there are at least pockets of such technological optimism in today's world – but fewer, I fear, and less confident.
Youth definitely plays a big part in this feeling but I think the dotcom era was also somewhat historically unusual because two huge external events happened around the same time: anyone old enough to grow up during the Cold War had lived with this constant feeling that their life could suddenly be destroyed (as a kid in the 80s we still had air raid drills), and then suddenly people were having rock concerts on both sides of the Berlin Wall while the victorious United States and European allies stopped worrying about the Fulda Gap and started welcoming new NATO members.
The second big change around that time was the internet tearing down cultural borders. Anyone could participate, even people who’d been trapped behind the iron curtain just a decade before, and many people were predicting that the free flow of communication would strengthen democracy and ensure the fall of Chinese authoritarianism.
(Far fewer people correctly predicted that the second would imperil the first)
Apologies for going off-topic but putting light grey text on a white background is one of the most baffling (and infuriating) design trends I've ever witnessed on the web.
It is. Maybe you know this, but you can right-click the text and choose "Inspect" and de-select the light grey color styles to make it more readable. I feel like an extension could do a decent job of automating this (simply remove all text color styles, or something like that).
What I'd say with Google is that I don't really think of Google as a .com era company because its massive success and hype wave came after the .com wave and crash had ended, and Google around 99/2000 wasn't a big hyped .com company...
In 99/2000 Google wasn't the massive success it was about 2 years later. And its IPO didn't happen until much later after the .com crash. It was known and popular among techies but wasn't the household name it became about 2002, 2003.
When I think of the .com crash (and I lived through it) I think of the companies that had IPOd or were about to, and took massive investment in 99. In 99 Google was still a small concern.
Amazon, yeah, I'd say Amazon is a late 90s company. Though they were just about books then.
I lived through that time as well by 1999 it was pretty clear Google was "the best" search engine site. Alternatives like Lycos, Infoseek, Altavista etc. were on the downswing.
I can remember the characters in an episode of Buffy the Vampire Slayer talking about Google (not sure if that counts as household awareness but it was getting there).
1999 was the time of Napster, it was a completely different internet it really felt like a Wild West.
To me the most sobering cautionary tale from the dotcom bubble is the story of Cisco. Cisco manufactured, in a very real sense, the physical infrastructure of the internet: the routers, switches, modems, etc. that directed the IP packets to their destinations. (To a significant extent they still do, though nowadays they have more competition in that area.)
Savvy investors piled in to the stock, reasoning that, while internet startups might come and go, the internet itself was surely here to stay. It was popular to observe that, in the California gold rush of the mid-1800s, the purveyors of mining equipment made it rich more reliably than the prospectors for gold.
Anyway the Cisco stock price peaked in March 2000, and to this day it still has not reached that level again. The savvy investors were of course correct in their belief that the internet would continue to be important, and that Cisco would continue to be an important manufacturer of internet networking equipment. But they lost money anyway, because once the euphoria had worn off the market consensus was that the stock just wasn’t worth as much as the price it had been selling for at the height of the mania.
Any parallels to hot contemporary stocks are left as an exercise for the reader — and I do not mean to suggest that history must always repeat exactly.
Ironically, if you look at Sysco's stock price during the dotcom days, it's often correlated with Cisco spikes because clueless traders would accidentally buy the food logistics company stock instead of Cisco.
I guess just because a lot trades were initiated over phone?
Obviously you don't mean NVIDIA, because 80% margins on matrix multiplication will last foreverrrrr.
The question will always be: Are we in the 1995 or the 2000 of the dotcom era?
By 1995, Cisco's stock had already increased 6x since the start of 1993. If you bought at 1995, you'd 10x by its peak. Even after the bust, Cisco's stock was still 50% higher than it was in 1995.
The problem with Nvidia's stock isn't demand. The problem is that Nvidia makes something so good and so valuable that the US government has decided to nationalize them by dictating who they can or can't sell to. If Nvidia is freely able to sell to any country they want, their sales and margins would be much higher right now. The demand is that great.
Nvidia's "moat" is mostly in the form of software though. If AI succeeds in automating away software development, that actually seems pretty bad for Nvidia the company.
I don't think there are any defensible moats in AI. I see Ciscos everywhere in that industry.
> If AI succeeds in automating away software development, that actually seems pretty bad for Nvidia the company.
You have a hidden assumption there: LLM being the way to real AI.
IMO it is not the case. And I'd go farther in thinking LLM won't even be a component of AGI if we get there.
It's not just CUDA. It's the entire solution from CUDA, best hardware, networking, data pipeline, etc.
If AGI is powerful, it will help competitors replicate that stuff. If AGI isn't powerful, why invest at such a high revenue multiplier?
The way I see it -- either AI is a bubble, in which case you'll lose your money. Or AI isn't a bubble, in which case the effects are fairly impossible to predict (and quite likely destructive to humanity, same way humanity was destructive to less intelligent species). Either way, it's not a technology you want to invest in. It's only in a narrow Goldilocks scenario where it's a good bet, and it's very unclear if we live in that Goldilocks world.
If AGI is powerful, everything will be thrown into chaos. Why invest in Meta when you can ask AGI to make your own Instagram app and acquire users? Why invest in Apple when you can ask AGI to make your own iOS? Etc.
Meta has an actual moat due to network effects. But yes, I think buying real estate, mineral stocks, etc. is overall a more effective and ethical way to invest for AGI.
What about the network effects?
I'd ask my AGI to iterate on a social app until it becomes bigger/better than Instagram.
If AGI is the reason you don't think Nvidia's stock is worth buying, then nothing is worth buying.
You're right that perhaps real estate/physical things will become more important. But whose to say AGI can't invent an asteroid mining industry and we get unlimited minerals?
an AGI is not going to be able to create the hardware (unless you imagine that there could be some sort of ai controlled replicators that could assemble anything out of atomic units).
And in the new world of commoditized software, branding becomes even more important. After all, nobody ever got fired for buying IBM.
>an AGI is not going to be able to create the hardware
I'm imagining an LLM agent that places an order with TSMC, just like any other design firm would.
>And in the new world of commoditized software, branding becomes even more important. After all, nobody ever got fired for buying IBM.
Seems doubtful. If the cheap option works just as well, why would you pay a bunch more just for the brand?
I don't think brand name alone will sustain anything close to Nvidia's current margins. Look at the "net margin" for industries that are brand-driven such as Apparel, Auto & Truck, Beverages, etc. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile...
If an industry becomes truly "commoditized", brand ceases to matter. Do you know which farm grew the carrots you buy at the grocery store? Do you care? Probably not. That's because carrots are a commodity.
I'm not claiming full commoditization will happen. But the closer we get to that, the more profits will drop.
> I'm imagining an LLM agent that places an order with TSMC, just like any other design firm would.
And hope the AGI would not put any backdoors or hidden "features" in there.
Why not? AGI can design the chip, send the instructions to TSMC's AGI, and you'll get your chips.
The point is that saying AGI is the reason you shouldn't invest in Nvidia stock because AGI will remove the CUDA moat is just not reasonable. You might as well not invest in anything in that world since AGI can replace anything.
The actual challenge is to identify the sectors AGI will affect last, and invest in those.
Why not invest in the company most likely to power AGI? If you're anticipating AGI, I think it'd make sense to put at least a bit of money into Nvidia/TSMC.
Ahh, found Epicurus.
"AI" isn't even profitable, it is neither good nor valuable outside of for creating a massive asset bubble. The export ban was made by old dinosaurs that don't understand the tech and is more about China than "AI".
LLMs (what you mean by "AI" with the scare quotes) are great at spamming and scamming people.
I’d generalize that somewhat to say that LLMs are good where you can cheaply verify the results relative to the cost of being wrong. A lot of scamming is already structured around most people ignoring their messages, and they don’t support anything so it’s just a question of whether they lose more potential marks than doing it manually.
(This is also why coding is one of the areas where they perform best: the cost of structural validation is low and there’s a human in the loop verifying the behavior)
To me, it is the easiest trade in the world right now. Long NVDA on a market volatility spike. "AI is dead", "the high is in".
It is obvious to me we are going to get to "AGI" in this bull run. Maybe it is complete hype and bullshit marketing but we are going to get to someone releasing a model they claim is AGI. That is really why I don't see what the point is in comparing this to the dotcom. Dotcom was really a bandwidth problem that just needed to get sorted out because my telephone line was basically busy from 1995 to 2001. There wasn't this AGI narrative that once crossed you can price in any valuation you want.
There is a huge bubble and irrational exuberance in quantum computing stocks right now. Those have nothing to do with reality. That looks like dotcom level stupid.
NVDA is not even a bubble, it is just a bull market.
>Maybe it is complete hype and bullshit marketing but we are going to get to someone releasing a model they claim is AGI.
>...
>There wasn't this AGI narrative that once crossed you can price in any valuation you want.
And due to the strength of this "bullshit marketing" "narrative", you can be sure there will be a greater fool to sell your shares to. Where have I heard that before?
A more realistic bullshit-marketing scenario: OpenAI releases a product they claim as "AGI" purely for marketing purposes, everyone gets disappointed as they realize "this is it?", share prices drop.
The story of Cisco illustrates that moats matter. There aren't any in AI, as far as I can tell.
If AGI for software development is actually invented, one of the first uses will be to wreck Nvidia's moat.
This is my quant
And I can't name several customers with very deep pockets working on their own chips to squeeze/compete with NVDA.
I think you're not naming entire nation states, given the way the Chinese are splashing money around there it looks like there is about to be a flood of chipmaking capacity hitting the market and a lot of that will end up competing in matrix multiplying.
Although I hear VCs are working on an algorithm where they burn money directly and the smoke patterns represent the solution to the multiplication. That might keep the margins high.
> Although I hear VCs are working on an algorithm where they burn money directly and the smoke patterns represent the solution to the multiplication. That might keep the margins high.
This has been bothering me for some time now. It’s rather obvious to me, as an engineer, which startups are well positioned and which aren’t… Do VCs really have no standard for due diligence, do they really just not care, or is there something else at play that I’m missing…?
> is there something else at play that I’m missing…?
Depending on the stage, investors don't care about any of the details except for the founders ability to raise the next round and their probability to IPO at a later/advanced stage. The stock is the product and whether you are selling a real time machine or a crystal is irrelevant.
Which is not that "insane" really. If that's how money is being made, and investors are in the business of making money, then that's the path they are going to take.
> The stock is the product and whether you are selling a real time machine or a crystal is irrelevant.
This is the right answer, some people think that the dot-com bubble and mortgage bubble is something for investors to regret, when in fact they made such a ridiculous amount of money they're just searching for the next bubble. Not the next great product.
some investors did. This kind of strategy is still risky.
Sadly that is what market economy has morphed into. Was suppose for groups to share intelligence.
Markets (like most human systems) aren't really 'supposed' to do anything: they've just kind of evolved as various participants in the market have found them useful for different things, and competition between systems has selected for characteristics that allow them to survive. Economists mostly describe systems, ideas like efficient markets are more of a post-hoc hypothesis for why the system survives, not an up-front designed attribute of the system that was desired when it was set up.
(which basically means that if the conditions mean that the optimal strategy in the market is to basically just run pump-and-dump 'greater-fool' scams on everyone else then that's what you'll see occur)
Different to investors are chasing different dreams.
As an exercise, imagine you have a portfolio which will in a typical year lose around 1.2% to the tax man for capital gains. Rather than accepting the guaranteed loss of taxes - you take ludicrous bets on asset classes where you can be guaranteed to book a loss which could be harvested for tax purposes, or will return 100x your investment (at which point you don't care about the tax man).
Viewed in this light, the VC preference for burn bright and burn fast startups makes sense. The worst case scenario for some LPs would be to still have money leftover.
I don't understand how this adds up. If you're losing money to the tax man you're still making money overall. Now, you could say 'screw it' and put the money you're making into long-term risky bets, but either they don't pay off, and you've just lost money, or they do pay off, and you owe even more tax, with even less efficiency. If you wanna gamble, you can gamble if you want, and the supposed idea of VC is that if you take many risky bets you'll be able to win on average, but it's not tax-efficient at all because you tend to win all at once.
(As a general rule of thumb, I'm deeply suspicious of any 'it's a tax write-off' explanation for people losing money: its extremely rare for losing money to make someone better off overall. It may be advantageous for them to move around where and when they say they are losing money, as you'll generally be more tax-efficient if you make money consistently and through activities in areas which are not as highly taxed, but it's not generally a useful strategy to light cash on fire to reduce your tax bill: you tend to be out of more money than you save on tax)
Valuations aren't attached to reality. Look at Crypto, NFTs, Quantum computing etc. You can have a completely non-viable money pit but if it hits the right hype cycle mix you can make huge exponential gains. It's just about what other people can be convinced to invest in. Right now the US tech sector is pretty much the only game in town to dump money and hope for huge returns. Previously it was "emerging markets" but right now there's a lot of regulatory overhead limiting gains in most EM countries.
> It’s rather obvious to me, as an engineer, which startups are well positioned and which aren’t
So I assume you are a multi-billionaire, right?
You could know precisely what to invest in but not have access to the funds or deal flow and not be successful.
> Do VCs really have no standard for due diligence
The Theranos saga should give you the answer you're looking for.
You are looking at it the wrong way imo. It's like when developers build a product and only focus on the technical side and neglect/underestimate the sales side or when they buzz about the language used to build something.
VC don't really care about the startup's product. Your pixel machine. That's a side effect.
Growth. Exit. IPO. Those are the 3 words they want to hear.
> Growth. Exit. IPO. Those are the 3 words they want to hear.
IPOs aren’t happening in this market… Are IPOs still the only thing investors are looking for?
>something else at play that I’m missing…?
I'm not sure if you are taking into account that VCs are remunerated largely on the amount of money they invest rather than the results?
Those Chinese companies will have to fight our western champions, TSMC in a green trenchcoat, TSMC in a red trenchcoat, TSMC in a blue trenchcoat, TSMC in a purple trenchcoat, and TSMC in a yellow trenchcoat.
Is this after the same Spidermen TSMCs got down from all sitting on top of each other?
> VCs are working on an algorithm where they burn money directly and the smoke patterns represent the solution to the multiplication.
That's literally crypto, right?
Microsoft, Meta and Oracle already spend billions on supposedly completely inferior(according to the Nvidia cultists) AMD chips. Nvidia is the biggest bubble in human history.
That’s got to be Tesla. Nvidia’s PE is still half that of Tesla.
PE isn't a cheat code to rational stock valuation, it's the "nothing ever changes" assumption dressed up in a formula. PE looks at past earnings, while the price of a stock buys its future earnings. A modest PE on NVDA says "I expect datacenter revenue to continue" while a modest PE on TSLA would say "I expect robotaxi to fail." These are fair opinions to have, as are their opposites, but if datacenter revenue collapses then today's modest PE won't save NVDA and if TSLA can pull off robotaxi then today's high PE will be vindicated. Stocks are all about Future Earnings, but you can't put that in a column and sort by it so we have PE.
You can certainly have success while avoiding high PE stocks, but you are on a site about startups and your name suggests you work in the tech sector, which are both places where high PE often does make sense and it pays to be familiar with the reasons.
> a modest PE on TSLA would say "I expect robotaxi to fail."
No. Just having competition is enough to destroy the expectations on TSLA.
And realistically, they are abut last on that race, being thrown out of track about a decade ago and never managing to make anything work since then. So, yeah, betting on no competition is a very weird option.
Good point. With BMW, Lexus, Audi, Mercedes, Porsche — all with luxury EV's — Tesla really is looking like an also-ran.
I'm not in that circle of clientele though so I don't know: are any of these now seen as the luxury electric car?
The more interesting dynamic with Nvidia though is that most of its revenue is actually fueled by bubbles as well. Teslas earnings are much more grounded and natural.
“Teslas earnings are much more grounded and natural.”
How do you rationalize Tesla being valued higher than the combined valuation of the next ten car companies? They will be the only one left standing?
I think you misunderstand that comment. Tesla may be hopelessly overvalues, but their revenue may grow in future. OTOH Nvidia's revenue may have peaked.
Maybe so. Their valuation coming down to earth would certainly ripple. Whatever precedes that fall, it seems unlikely that revenues would remain unaffected.
In all, it’s unfortunate that the US’s most prominent electric vehicle manufacturer is wrapped up in so much noise. Competition is only going to stiffen.
how is their revenue gonna grow in the future when they don't have an edge in their main core product. Batteries are by panasonic. while BYD makes its own batteries. Tesla has no moat. At least Nvidia has CUDA
Grounded as in they are heading straight down to the ground sure.
I don't why this comment was downvoted. You raise an important point. I also noticed that you (carefully?) made no comment about Telsa's stock price. Instead, you only focused on their earnings -- which are excellent for a car company.
It got downvoted for not parroting “Tesla bad” even if it didn’t claim anything to the contrary and is simply observing one fact — Tesla’s earnings being great. That’s not acceptable apparently.
You forgot to add “Long TSLA”
> And I can't name several customers with very deep pockets working on their own chips to squeeze/compete with NVDA.
Google, Amazon, and Microsoft all have custom ASIC and TPU projects in their pipeline, and what holds true today might not hold true in 5 years.
A major reason Nvidia was able to do so well was because of technical outreach by donating their GPUs to programs all over the US, building a strong albeit self serving OSS relationship, the CUDA ecosystem, and the acquisition of Infiniband.
Much of these advantages can be nullified by competitive margins and pricing for hyperscalers designed and owned hardware.
Cisco was hit by this same situation as server vendors like Dell began integrating their own in-house networking functionality within their servers, and Dell itself was outcompeted by cloud vendors.
Agreed, the only thing I'd add would be AMD's self-sabotage. Pretending to have compute capability (see also "right around the corner") for over a decade when it was actually so broken as to be sub-viable was an enormous own-goal that they doubled down on when they exited desperation mode without rehydrating the teams and tripled down on with the RDNA/CDNA split.
By rights they should have been fast followers, but they stacked the critical mistakes so high that frankly I think NVIDIA's subsidized GPGPU classes are the smaller part of this story. If the people struggling to get OpenCL to work had been able to get it to work (on other than NVIDIA GPUs lol) the situation would look very different today.
And I'd be surprised (disappointed) if AAPL were sitting on their hands.
Cisco did not innovate out of their first incarnation. Nvidia evolved out of gaming gpus, and they didn't do it because they were looking for trends.
Nvidia didn't innovate into AI. Developers used their gaming cards for AI. They kinda got into that situation by pure luck. I wouldn't trust they will be able to pivot into the next big bubble if it's quite outside their area of expertise.
also crypto mining does tons of SHA256 on CUDA.
People choose NVIDIA because of the software. So will software margins go away?
Just an interested layman here: seems like it's the libraries that people choose. I don't see why those can't be ported to other hardware.
Part of this was that sales for networking gear actually did tank because there were so many companies going under all at once that suddenly weren't buying any more gear.
There were so many companies going under lots of people I knew ended up with racks in their house with servers from work that they got for free.
I never did that but I had free furniture!
You see different versions of the four horsemen of the internet but the one I remember (and I can find lots of references to on the internet) is: Cisco, Sun, EMC, and Oracle. And, indeed, Oracle is the only one continuing to perform whether you like them or not and whether startups use them at this point.
With respect to Cisco specifically (and Intel) there was also a huge optical networking bubble.
While Oracle definitely benefited from the dot-com era, my impression was that, unlike the other three, its core business has always been banks and other large enterprise companies.
That core didn’t suffer much during the dot-com crash so Oracle was in a good position to do things like vacuum up the pieces of Sun.
Don't disagree. That was the common metaphor? But Oracle was less embedded in the internet ecosystem even if Sum was enterprise too to a large degree--though was trying to be more startup/internety given their roots.
Linux ate Sun, I ran a sun lab, had a few sun workstations at home, but really preferred my linux/BSD boxes. BSD/Linux ate into Cisco. You could buy multiport ethernet cards, throw it into a linux PC and have your own router/firewall that offered more features than Cisco. MySQL would have eaten into Oracle, but their stupid MyISAM got in the way.
MySQL would never have eaten Oracle. Oracle had /has a huge installed base of corporate/government customers who are risk adverse to switching out their database for fear of breaking critical systems.
No one building a business today would ever choose Oracle, but their hold on legacy customers is pretty strong. They will probably die a slow death as their customer base dwindles if they can’t pivot.
They are fairly similar to IBM
> They are fairly similar to IBM
This feels unfair. When was the last time for example that Oracle manufactured a CPU?
Apparently in September 2017, when they introduced the SPARC M8.
They discontinued development though. It was meant as a lighthearted comment. They are indeed weirdly similar in some ways.
Maybe Oracle will start developing quantum chips.
Yup, Linux ate Sun and Sun shot Java in the head hiring Jonathan Schwartz
I don’t care what anyone or the courts say: Android stole Java and Google and all the ex Java people it hired know it
Imagine the outcome if Java was licensed correctly and Schwartz didn’t just give to Eric
Well Oracle bought Sun so it’s tough to see your argument but I love the EMC addition. I know many who retired from there and are still retired . Their sales team printed money
That acquisition came later because dot-bomb (and, yes, the rise of Linux) helped crater Sun. It's not my argument anyway. It was a popular theme at the time even if the company names have been repopulated in many later tellings.
I worked for EMC very briefly (like for a few months after close) via an acquisition.
but a great bet as the bubble was bursting was not mining equipment for the prospectors, but instead energy drinks for the coders. Specifically $1000 invested in Monster Beverage Corporation (MNST) would be worth $1,187,849 today.
same $1000 invest peak dot com on March 10, 2000 Apple (AAPL): Value today : $266,862. Nvidia (NVDA): Value today : $882,065. Amazon (AMZN): Value today : $256,482.
Picking stocks retroactively is easy.
Personally I find it really fun. Helps keep chasing money in perspective.
Could have, should have, would have.
Company I was working for didn't go public until the end of March that year. No horror stories from me, was a fun time to be working, lots of great memories.
Investing in a market index today is even easier. Instead of doing historical research on thousands of stocks, you just compare the expense ratios of a handful of index funds and pick the lowest one.
I don't disagree but even modest bets in specific companies have done pretty well over the past couple decades or so. Yes, they're gambles but small-ish bets for bigger payoffs than NASDAQ. (Though that's been pretty good overall and probably safer in aggregate.)
It’s hard to know few decades ago which companies to put substantial money in. It’s hard to know which companies will perform in the next few decades. And if you are wrong in your bets, there goes a few decades of your life and you can’t rewind the clock to try again.
If you’re retirement investing there’s there’s no need to make substantial bets in individual companies. 90% in index funds will get you to a reasonable retirement, 10% in something that looks interesting has minimal downside and significant upside because the value of money is non linear.
Assuming a buy and hold strategy at worst all your bet goes to zero which is unlikely, but there’s many companies that go to 100+X and hitting them can meaningfully boost your retirement. Gateway computers vs Dell wasn’t an obvious choice, but that’s a coin flip with huge upsides. Buy it in a given year and ignore it for the next 20, no you’re not going to time the market but you would see most of the upside.
I wouldn't fault anyone for just not doing individual investing. But, yep, if you're interested in putting in some time and think you have some insight into a particular sector, putting 10% or whatever into some individual companies you think are particularly interesting isn't a bad strategy. Some will flame out but maybe you'll hit one or two gems. It can also make sense to clean house now and then. I did that a couple years ago and I'm glad I did.
But then you get stuck owning Tesla and Exxon
I think a good way is to balance:
- mainstream investment (passive or active via trusted professionals and with balanced approach); and —
- making non bank-breaking direct stock investments in some really promising early stage public companies (again, with professional help)
Without the latter the return would be just that — earning a return; it won’t even come close to wealth or have a possibility of that.
PS. Yes, those professional help won’t have a crystal ball, but they can tell you from an average company to good to just okay to absolute shit via things like their books, governance, returns, plans etc.
Yeah. AAPL could have been a huge win for anyone. I actually did pretty well but nothing like the step level function that investing a bit earlier or bigger could have been. And there was also a bit of a drop when a lot of people could have doubled down but got out. But there's a lot of luck involved. (And I've since diversified most of it to money managers and taken the tax benefits.)
In the case of APPL it is fun to think about what the money I spent on a computer that year like a Power Mac G4 could have been worth today if I had invested in the stock instead.
I remember local developer group chats about BTC / ETH in early 2010s. We met weekly next to local restaurant bar. I like to calculate what if I had skipped a meal or a drink one night and instead bought BTC or ETH with the that money what it would be worth today.
Bets I haven't made. Bets I have made.
Some AAPL bets were pretty good ones. BTC seems more like a real gamble. Though obviously back in self-mining days even if it seems not much different from SETI at Home. And your hard disk would probably have crashed at some point. Or you would probably have been ripped off.
Or you would have sold when it hit $1
Best way to be miserable.
Money you almost made hurts equally as much as money you had and then lost. (That's Munger. In my opinion big money you almost made hurts more than big money lost.)
Not sure I really agree given the common view of utility functions that favor loss aversion.
Apple wasn't doing so great in 2000. Its "PC" market share was ~2%. Jobs had just come back a few years earlier and MS made a large investment, but neither the iPod nor OS X had come out yet, so it was quite a turnaround story.
In the earlyish 2000s, Apple started to look interesting as a consumer electronics company even if it wasn't clear they were committed to it. And the whole mobile trend wasn't obvious to a lot of us at that point.
I talked to them as an analyst in that era and they were still spending attention on enterprisey products like Xserve.
And even the initial iPhone in 2007 wasn't clearly a game-changer. It was the 3GS that really made a lot of people take notice.
For every Monster, Red Bull or Rockstar there were probably two dozen energy drink brands that failed.
So what you’re saying is that for 20-30k you’d make at least 1m by holding them all for 25+ years?
this is a common misconception, which I think arises from the ideas of index investing. one must remember that while the index itself increases over time, many of the names on the index in eg the year 2000 simply don't exist anymore; consider companies like Kodak Eastman
if you held all of the energy drink companies including a placement into monster for 25+ years you would indeed make money on the 1-2 winners and end up net ahead.
But if you missed monster, you could very easily have just bought a basket of dog companies that all completely fail and the money is gone
Or Monster could have been out-competed by Red Bull or Rockstar, which never went public, or by the incumbent PepsiCo.
"At the March 2000 peak, Cisco's price-to-earnings ratio stood at 201 times,"
So that's about 10x more than Google and 8x more than Meta and 5.7x more than Amazon. Just to get some proportion.
So when the llm bubble burst everyone holding Nvidia will probably lose? Makes sense to me.
The difference between Cisco and Nvidia is that Cisco's P/E ratio exploded out of proportion to their business while Nividia's revenue and profit are increasing exponentially. But people will probably tank NVDA -95% anyway because "bubble popped".
There is certainly a boom for Nvidia right now. To justify their PE though Nvidia has to keep increasing their already massive revenue to completely ridiculous and unsustainable levels. The bubble here is the amount that big tech is spending on unprofitable "AI" simply to keep their stock prices from collapsing.
Nvidia's forward P/E is only 27.10. Is their valuation really that outrageous?
Netflix has a P/E of 46 right now.
"AI" is unprofitable and almost completely useless. With capex demands ever increasing just to push the diminishing scaling returns further, this is not sustainable. Their revenue will collapse in the upcoming recession and you'll see it's PE balloon into the hundreds.
AI is in the very early stage of an industry where competition is intense, therefore, profits are harder to come by. Eventually, AI will be immensely profitable. Calling LLMs useless is just as nuts.
AI becoming useful doesn’t mean that it will become immensely profitable: the lesson of DeepSeek was that nobody has a moat.
There is clearly a moat. The moat is in data, training algorithms, compute capacity, and UX.
The LLM labs can't all keep up. Most of them will fail. Some of them will merge. In the end, there will be a few dominant players.
> The moat is in data, training algorithms, compute capacity, and UX.
That’s a very shallow moat, then. I mentioned DeepSeek because everyone insisted the American giants had huge leads over the rest of the world until the day they got a big reminder that three of the things you mentioned are commodities and UX isn’t a moat.
> "AI" is unprofitable and almost completely useless.
Famous people said that about the Internet as well, back in the day. And about AMZ.
I've still never bought a single physical product from Amazon.
Only AWS, which I stopped using when they decided to raise their price I'd already locked in and prepaid for, which should be unlawful. Then I realized every traditional provider is much cheaper.
> Any parallels to hot contemporary stocks are left as an exercise for the reader — and I do not mean to suggest that history must always repeat exactly
Crashes come amidst collapsing expectations. The structural risk tech currently faces is a collapse of American tech companies' global TAMs due to trade policy. (Think: the market constriction Tesla is seeing in Europe, but across more companies and markets.)
I worked at Cisco from 94-99 in the Morrisville, NC center. The salespeople there did not even have to really work and they were making bank. And so was I. Until my mental health collapsed and was "mutually terminated. Soon after I left I decided to sell all my Cisco stock and it was just in time, 2/10/2000. I wish I could say I did it because I was smart but I was just tired of the whole scene.
But what is happening now, IMHO, is way worse, and much different, than the dot com bust. The Yemen offensive might be a pre-text for, or start, a war with Iran.
US always bombed countries in middle-east/africa, that's nothing new and it didn't impact the world order/economy significantly. On the other hand if US invades Canada... that's WW3.
>once the euphoria had worn off the market consensus was that the stock just wasn’t worth as much as the price it had been selling for at the height of the mania.
I've seen too much in the past 4 years to think that euphoria is anything but a convenient and incomplete explanation for things like, "Cisco's price hit its high 25 years ago and never since." More is happening, driven by the fact that there's more ways to make money on the movement of a stock than it going up significantly in price over time.
You can pick better examples. I would go with JDSU.
I don’t know any investor who puts 100% of their money into a single stock, nor any who lack recurring cash flow to buy more of what they already own. While their 2000 purchase may not have realized any gains, they’re likely ahead thanks to dollar cost averaging and dividend payouts.
This was super common in the dotcom era because day traders were hanging around the same message boards creating what we now call meme stocks. Many of them had to lock in those loses when they hit the financial crunch of the dotcom crash or the later real-estate bubble.
I had a cautionary example from some sales guys I worked with, who got caught up in margin calls – one burned the wedding money his wife had ear-marked for a house. I had avoided stocks like Cisco with wild P/E ratios and my portfolio made good returns throughout this period because it was diversified, but if I’d been willing to bet higher on Apple I would’ve retired early so I appreciate the allure.
>>who lack recurring cash flow to buy more of what they already own
You don't know anyone retired, unemployed, or employed but spending all that they currently earn due to having kids etc?
> I don’t know any investor who puts 100% of their money into a single stock
You clearly don't follow very many "meme stock" communities.
Had the dotcom bubble not burst I’d likely be an attorney. I’d accepted an offer at a law firm in San Francisco to work in their Securities practice, largely taking companies public or doing M&A.
In March of 2000, the firm called and said: “Good news bad news. Good news: you still have a job [unlike a lot of my law school classmates]. Bad news: we don’t need any more Securities lawyers, but we have lots of room in our Bankruptcy practice.”
Being a Bankruptcy lawyer didn’t sound like fun. A law professor’s brother was starting a B2B startup. He offered me a job. The startup was a colossal failure, but I was hooked on the idea of a group of people starting something from nothing.
Next ~8 years were painful with lots of ideas that went no where, but it all worked out. So, in the end, always remember that but for the dotcom bubble bursting, I’d be keeping track of my time in six minute increments.
Always remember that without the dotcom bubble, eastdakota would be counting in 6 minute increments :P
Sincerely, can you say more about the 8 years of pain? I’m curious how you navigated that, especially with/without relationships, family obligations, “runway” restrictions, etc
Edit: looking at the profile, eastdakota is CEO and cofounder of CloudFlare. There are probably interviews and Wikipedia pages that address my questions.
Those 8 years were painful. To make money, I worked as a bartender, an LSAT test prep instructor, as an adjunct law professor at a law school that was so bad it doesn’t exist anymore. I remember 4am at the bar in Chicago where I worked, cleaning up some patron’s puke off the floor, and thinking: I need to figure something else out.
All the time I was trying to find an idea for a startup. I still had the lawyer bit flipped on so lots of things I tried had a legal/regulatory bent. That was definitely a blind spot that held me back for a while.
The fun YC-related story on the founding of Cloudflare is that, before YC, Paul Graham used to host a conference called the “MIT Anti-Spam Conference.” He invited me the second year of the conference (2003, I think) to give a talk on how to write effective anti-spam laws. The very technical crowd was polite to the lawyer. I met a ton of interesting people, many of whom played outsized roles in machine learning over the next few years, including John Graham-Cumming, now Cloudflare’s CTO. Paul invited me back the following year saying I should do something similar.
I was pretty sure the audience wouldn’t tolerate the lawyer giving another talk about regulation, so I went to a young engineer on the team of the (bad) startup I was working on and suggested we build a system to track how spammers scrape your email addresses. He agreed to build the backend if I built the front end (which I largely stole from the hot startup of the time: LinkedIn). That turned into Project Honey Pot, which I gave a talk on at Paul’s conference. Project Honey Pot gave the initial seed of an idea that turned into Cloudflare. And the young engineer was Lee Holloway who cofounded Cloudflare with me and Michelle Zatlyn.
Lesson to me has always been even in times where you don’t feel like you’re making forward progress in your life and career, find ways to stay involved with interesting people and projects and chances are they’ll pay dividends in ways you don’t expect later in life.
I clearly remember walking back to Paul’s house in Cambridge after the 2004 conference where I’d presented Project Honey Pot. I believe he and Jessica had relatively recently started dating. They were talking about startups and how people didn’t understand how they worked. Paul suggested they should teach a class at MIT. And that, of course, is what later turned into YC.
There were other dramatic events that evening in Cambridge that I think sharpened all our minds and made us appreciate there’s no time like the present, but I’ll leave that story for another day.
Damn, what a turn of opportunities from just saying yes and showing up (and obviously a ton of hardwork and sacrifices). Thanks for sharing!
I can't resist ...
> There were other dramatic events that evening in Cambridge that I think sharpened all our minds and made us appreciate there’s no time like the present, but I’ll leave that story for another day.
> ... appreciate there’s no time like the present ...
The present is now! Some of us are dying to hear the story.
I’ve told it elsewhere. Some Googling around may turn it up.
I love how humble his origin story was, and how he didn't need to drop in where he is/who he is as part of it.
Amazing who you /meet/ here.
Definitely. I think this is true of the internet in general, we have an amazing ability to communicate with almost anyone, even busy experts in niche fields, if we just make/ask something that interests them. I don't think I appreciate that enough.
To be fair, if you had gone down bankruptcy you could have made a killing doing distressed during one of the most lucrative periods.
Maybe, although the people just getting into the field probably aren’t making the fortunes and there wouldn’t be the satisfaction of building something real.
I've been keeping tabs on NVidia’s venture arm. The arm seems to invest massive capital (hundreds of MM) in credible startups focused on compute scaling. These startups then spend back on NVidia chips at a 98% margin. I'd guess that they get back at least .4 to.6 dollars of profit on every such transaction in direct payment. If their are other investor partners, they could get back more than a dollar in profit for every dollar of investment.
While this is a great deal where everyone wins… it can cover unsustainable practices in the market. They can grow revenue like a fractional reserve bank - which would unwind rather quickly if the venture arm ran into trouble.
I graduated in 1999 and probably should have stayed for grad school. I had good enough grades my Alma Mater was basically sending me letters my senior year "Hey you're just about guaranteed to get in if you apply!" It's hard to say as if I'd just gotten a master's I would have been getting out in the middle of the crash (bad) but if I'd stayed through getting a Phd I would have had a very different traectory.
But the whole .com boom was way too exciting. I knew lots of people who dropped out. I started out working at Cisco but then left to go to a networking startup and got there just in time for stuff to start blowing up. When I left Cisco the assigned Financial Advisor I had a Morgan Stanley recommended I take a loan for something like $200k to take my options with me or something. I was like 24 and had almost no savings, there was no way I was going to do that. Cisco ended up tanking from 200+ down to the 10-20 range months after I left IIRC. I remember telling a co-worker who got laid off at the same time that I felt stupid as I had spent a lot of my earnings paying off my car I had bought brand new and I also had a motorcycle. He remarked he had kept driving his 20 year old Honda Accord but had no more money than me because he'd lost everything in the stock market crash.
As others have said 9/11 was some kind of weird marker for a lot of us that it was all over. The company I worked for made it about another year after that but I have vivid memories of everyone doom watching the news in the kitchen at work before the CEO came and told us to go home for the day on 9/11. I went home and went out and rode my bicycle all afternoon where I had no way to get any news, it made me feel better.
When I got laid off it was like every single one of my friends was laid off too. All of us at once, and it wasn't layoffs, it was companies completely going under.
There was a lot of malfeasance too. I knew people who had jobs where there was almost zero work as the company was a borderline scam. People were either playing video games at their desk all day waiting for management to figure out what they were going to work on or they were studying for their next job.
I was super lucky. Both my roommate and I got laid off at the same time, we ended up breaking our lease and going separate ways. I lived with my parents for a while, but I only actually was laid off about 6 weeks before finding a contract job. Neither my finances nor my career really took much of a hit, but my confidence took a major hit that realistically took 5-6 years to really come out of.
There's a literal aspect of the dotcom era that I miss, the literal dotcom as part of the domain and even company name, the branding, like amazon.com or booking.com. (Booking.com still has that, which is why they don't have to spend all their money on Google Ads and beg Larry Page to let them have some money for themselves, like certain other online travel agencies.) I see dotcoms all the time on planes, ships, buildings. Realworld businesses seem to understand the power of reaching customers directly. But when I see an ad for a new startup, it's usually the company name and two app store icons.
I used to know an accountant that worked for Booking.com. You don't have a clue how much they had to pay to Google every month for ads. Literally a fortune. The thing is: people want to go somewhere, e.g. to Rome. Next thing they do is, type 'hotel in Rome' in Google. Google serves them a couple of paid links, and they check only the first couple of them.
I wish someone would write a book about the dot-com bubble. It's long enough ago to be interesting, yet recent enough that most of the people involved are still alive and available for interviews.
Or a film.
I remember the years leading up to it. I was a kid really (okay, beginning my 30's) and my games were being published by a small company in California. At the trade shows I would often see this guy who was a friend of the publisher who was an amateur investor.
Every time we would catch up with him he would rattle off all the stock symbols he had bought that were on fire and making him bank. For my working-class upbringing, this market stuff was a strange world. He might as well be talking about pari-mutuel wagering (whatever that is).
Some years later when I heard that Netscape was about to go public I decided to see what this investing thing was all about. At that time there was a brokerage in downtown Lawrence, Kansas where you could pay a fee to place an order on a stock. Me and a few other nerds that had never invested in the market before each put a few hundred dollars we had toward Netscape.
With the stock priced at something like $28, I think I placed an order to buy if it was below $40 or something like that. By the end of the day I had learned that Netscape opened at over $40 and, while it dipped mid-day at some point, it never dipped quite below $40 and so I owned zero shares. A near miss?
So it was my first step in investing (or misstep). There would be more (missteps that is).
It was only years later when I was wiser that I realized that the guy who was picking the winners so well back in my trade-show days couldn't really lose — all the stocks were going up.
This was a wild time to begin a career, and I was just dropping out of college, having been the class of '99 but delayed a semester already due to bad work/life balance. I was self-teaching in web and systems programming and generally doing things on the internet, had a good grasp of things technically, but had no grounding in finance, business, stock options, or any of it. Everywhere around me seemed like opportunity, and Linux seemed somehow related. I even was supposed to have stock options in VA Linux[1] due to my paid work there, but that didn't pan out in the end. I didn't yet know how the internet would change everything, but it felt like it was definitely happening, and somehow that meant everyone involved would get rich. The media story didn't help. I wouldn't change any of it, though. I did it for the love of learning and still do.
[1] https://www.wired.com/1999/12/va-linux-sets-ipo-record/
That sounds a lot like the atmosphere around AI right now
I agree with all that. Dot-bomb was a nuclear winter like nothing tech has seen since--certainly including today. I was lucky enough to almost immediately land something through someone I knew and, if it didn't pay a lot of money, it was a decent (and mostly enjoyable) living for a number of years. But a lot of people I knew basically dropped out of tech and some probably never again had solid jobs.
And, yes, it also crashed any tech-heavy investments that took years to recover to their peak levels assuming they recovered at all. A stock I owned through options at one former employer were a source of tax write-offs for years. Probably led me to be a bit too conservative with such things. Eventually they got acquired through various complicated transactions and I did "OK" after something like 15 years.
> Probably led me to be a bit too conservative with such things
Those who graduate into recessions have crimped lifetime earnings compared to those who graduate into expansions. I wonder to what extent it's lost income, and to what extent it's a more risk-averse attitude.
I don't know. For me, it was mostly don't double down on my own company stock or maybe even (at the time) more aggressive funds generally. It's not like I retreated into Treasuries. But I still did OK from the more aggressive investments because (maybe luckily?) they did pretty well.
I didn't really graduate into a recession but I felt I learnt some lessons in dot-bomb (when I was probably almost 40) which was a decent way into my professional career. It was a period from the 80s when new grads in tech weren't earning anything like the incomes that at least some Silicon Valley copanies were paying if that was there thing.
You’re lucky to even have done OK. Not only did a lot of people get wiped to zero, but some people ended up in huge debt to the govt.
I know multiple people who went through:
- Exercise an option and “realize a gain”. Have to pay taxes for that year on the realized gains.
- stock crashes to zero or near zero before they had a chance to sell (either because of blackout periods or not being public yet)
- tax burden from year N-1 is still due for hundreds of thousands. Capital loss offset only helps for returns in the following years
Sell to cover if you can
I worked with some folks like that. They emphasized always do same day sale, don't sit on the stock after exercising. They had massive tax bills, because they exercised when the stock was flying high, but didn't have enough cash to pay for it. The stock itself had cratered so they couldn't raise money that way.
I don't remember the details. I had bought a (modest) vehicle with exercised gains (and maybe employee stock purchase). Don't remember the residual tax impacts being a big factor in general--may have been timing of some sort. But a $100 stock went to about $4. Went back up a bit and then only became somewhat OK through various subsequent acquisitions and spin-offs. But, yeah, a lot of people got clobbered when they took profits and then held onto the stock--and other scenarios like you say.
When I left not long before dot-bomb, I'm glad I didn't go for all the stock options they were offering me but I had already made the decision to leave. The company I went to cratered but, as I wrote, someone I knew picked me up.
But, yeah, making it through dot-bomb was incredibly lucky. The situation in tech broadly may not be great today but it's not like 2001.
Also the story of midcap saas going public around 2020.
Application service providers. Was just not the right time.
I was somewhat early in my career when this happened. I was working at a small telecommunications company when the crash hit. Just about everyone got laid off, though with decent severance. Managed to make that last until I got another tech job almost three months to the day after my previous employer went belly up.
It was a strange, scary time. Not just companies pretty much vanishing overnight but also a lot of people losing their jobs. Not all of them were as lucky as I (and a few others I knew/worked with) was; they couldn't find anything in the industry for a long while. Some abandoned tech. Others stuck it out.
Never want to go through anything like that again!
That one hit me hard. I had just quit my job from a prestigious company the previous year to pursue my dream with two friends of building an internet related company and just a few months after we launched the market tanked. And it tanked so hard that we practically went out of business a year later. The problem was that the web back then was so fragile as a business case that once the bubble burst a lot of companies lost interest in investing in it.
Nice timing, although the market crash that is just about starting right now is more due to lack of functional US market regulation (similar to 2008, but worse).
How so? Feels like the crash starting now is very squarely due to the chaotic anti-investment actions of the current administration.
No the crash was coming this administration just accelerated it. Trillions of $ of government debt and private debt is up for financing at 3-4 times the interest rate.
Maybe - i've been reading that sort of permabear "the economy is about to crash because of obvious reason X" for at least 15 years now. I listened for a time sadly - it cost me a lot of missed investment growth. Eventually they'll be right, but haven't been very predictive.
However, the deliberate economic self-destruction being unleashed by trump and friends feels like a very different flavor of cause.
I'm a big proponent of the bear case, but if you factor in dividends [0] pretty much any time in the last century has nominally been a good time to invest in the S&P 500 even if the first few years aren't optimal.
The bear case is generally "this will cause a crisis, then the government is going to print money, hand it out to asset owners & lump taxpayers and citizens with the real costs". There has been a reasonable expectation that shareholders will come through fine since the '08 crisis firmed up expectations about how the government will handle problems. I don't think there is an expectation any more that the S&P will go down in nominal terms. To argue that it will someone has to come up with a theory where the Fed doesn't get involved. There have been multiple major crisii and if anything US stock market performance is the inverse of how the economy is expected to perform. For example, COVID was a big winner for shareholders and asset owners despite obviously being an economic catastrophe.
[0] https://www.slickcharts.com/sp500/returns
Economists have predicted 9 out of the last 5 recessions, as the saying goes.
Usually even if this it the case you don't necessarily want to pull out of the market, but buy into the dip. Unless you seriously think the stock market is going to be wiped out for years, buying the dip means you have a large position when the market starts recovering.
Most non-institutional investors rarely just have cash lying around. My assets are tied up in the market. Same as it's dangerous to try to time the top of the market, it's dangerous to try to time the bottom. I tried in a modest way in 2008, and it took me a decade to recover on those stocks.
It's also dangerous because the dip is the average. Individual companies can and do fail.
> Trillions of $ of government debt and private debt is up for financing at 3-4 times the interest rate
This is a problem, but it's not the current problem. The pain isn't coming from defaults [1]. It's coming from our export industries.
[1] https://fred.stlouisfed.org/series/DRALACBN
US exports make up 11% of GDP. Of that 11%, some fraction is facing retaliatory tariffs.
Considering the DJIA went up 4,000 points from Dec then crashed 4,000 points in Jan, one should be careful assigning cause when it did it again from Jan to Mar.
I was honestly shocked that both the Biden admin and corporations were able to hold this off in 2023-2024 given the huge debt loads held by everything.
Banks love to extend and pretend big loans because loans going belly up is also bad for them. Small fry like homeowners rarely get such grace.
What crash so you foresee? We just had a correction but that’s typical and healthy.
How do you think it will unfold?
The upcoming AI crash is gonna be seriously big
But anything that survives the crash will be the next Google.
The massive photo and site header of this site are fun but distracting when reading on mobile. Removing the top photo and removing or minimizing the top header would be a nice change for readability. I’m not sure what the SEO recommendation would be though.
"The aftermath of the dotcom bubble didn’t just turn dotcoms into acquisition targets. Established tech companies became acquisition targets themselves. In some cases, they even sought out acquisition as a matter of survival."
Sounds like a lot of startups.
and there was no more traffic on the 101
Didn't realize it hit Socal so hard.
COVID did that too. It was eerie.
I enjoyed it when the highway was empty. Me and my friends would go for drives and it was so fun.
I mean yeah the circumstance sucked sure but it wasn’t eerie for me.
My family and I thrived during the pandemic. We made a lot of money, we sold our house and Airbnb'ed around the US, including Hawaii. It was an amazing time for us.
The years 1996 to 1999/2000 feel to me like I could go back and live them 20 times over, each time different, and still feel like I would look back with longing at all the things I missed out on and wish I could go back and relive/redo/take-a-different path.
I haven't had a feeling anything like that since about any time. I know it's probably in large part because of my age at the time (early 20s) but there was also just so much going on and the feeling was so intense, and youth culture was so on fire, so much energy. And in our tech industry, where I was just starting to find my foothold... there was this feeling in technology like if you just found the right combination of tools and ideas you could really be at the forefront of something new.
Dropped out of my BA in philosophy to join the fray and write code. Weekends full of raves, neat parties and music, meeting all sorts of people, and feeling like tech was part of something progressive and world changing in a positive and utopian way rather than ... this place where we are now.
The .com financial crash definitely exploded the euphoria. But more than anything 9/11 really was the thing that let the air out of the balloon for good.
Sept 12, 2001 I think was the beginning of this current era of paranoia and fear.
> The years 1996 to 1999/2000 feel to me like I could go back and live them 20 times over, each time different, and still feel like I would look back with longing at all the things I missed out on
I was about 8-12 years old at that time, so I just caught the tail end of the birth of the computer revolution. While I'm very glad to have had even that experience, I always feel jealous of my fellow nerds who were born about 10-20 years before me and really got to experience those early days.
Bliss was it in that dawn to be alive, But to be young was very heaven!
— Wordsworth, _The French Revolution as It Appeared to Enthusiasts at Its Commencement_
I love your description of this heady time, which matches the way that I remember it. Surely there are at least pockets of such technological optimism in today's world – but fewer, I fear, and less confident.
I kind of feel the same about 2007 - 2012 or when I first got into tech.
Youth definitely plays a big part in this feeling but I think the dotcom era was also somewhat historically unusual because two huge external events happened around the same time: anyone old enough to grow up during the Cold War had lived with this constant feeling that their life could suddenly be destroyed (as a kid in the 80s we still had air raid drills), and then suddenly people were having rock concerts on both sides of the Berlin Wall while the victorious United States and European allies stopped worrying about the Fulda Gap and started welcoming new NATO members.
The second big change around that time was the internet tearing down cultural borders. Anyone could participate, even people who’d been trapped behind the iron curtain just a decade before, and many people were predicting that the free flow of communication would strengthen democracy and ensure the fall of Chinese authoritarianism.
(Far fewer people correctly predicted that the second would imperil the first)
I got my nice Herman Miller chair that I'm sitting on now, which was wheeled out into the parking lot by the facilities guy saying "take it all..."
This Ballard style stuff is the things I love.
Apologies for going off-topic but putting light grey text on a white background is one of the most baffling (and infuriating) design trends I've ever witnessed on the web.
It is. Maybe you know this, but you can right-click the text and choose "Inspect" and de-select the light grey color styles to make it more readable. I feel like an extension could do a decent job of automating this (simply remove all text color styles, or something like that).
>And it’s a misnomer to call it a boom. In a boom, someone’s actually making money
What does that say about the current AI boom (when you exclude shovel supplier NVIDIA)?
> Amazon and Google did emerge from the dotcom era and both outrank Microsoft on the Fortune 500 today
This is not true :)
In 2024:
Amazon was ranked #2 Google (Alphabet) was ranked #8 Microsoft was ranked #13
Amazon was founded in 1994. Google was founded in 1998.
What about the statement:
> Amazon and Google did emerge from the dotcom era and both outrank Microsoft on the Fortune 500 today
isn’t true?
What I'd say with Google is that I don't really think of Google as a .com era company because its massive success and hype wave came after the .com wave and crash had ended, and Google around 99/2000 wasn't a big hyped .com company...
In 99/2000 Google wasn't the massive success it was about 2 years later. And its IPO didn't happen until much later after the .com crash. It was known and popular among techies but wasn't the household name it became about 2002, 2003.
When I think of the .com crash (and I lived through it) I think of the companies that had IPOd or were about to, and took massive investment in 99. In 99 Google was still a small concern.
Amazon, yeah, I'd say Amazon is a late 90s company. Though they were just about books then.
I lived through that time as well by 1999 it was pretty clear Google was "the best" search engine site. Alternatives like Lycos, Infoseek, Altavista etc. were on the downswing.
I can remember the characters in an episode of Buffy the Vampire Slayer talking about Google (not sure if that counts as household awareness but it was getting there).
1999 was the time of Napster, it was a completely different internet it really felt like a Wild West.
Fortune 500 is a ranking by revenue, not market capitalization, if that helps.
Article on dotcom without mentioning webvan!
Lol those were the days...