The AI bubble has echoes of the dotcom disaster - and there are strong signs that it could go pop

It is easy, at the distance of a quarter of a century, to forget the full madness of the late-1990s dotcom bubble.

- Nils Pratley

The tech-heavy Nasdaq index in the US rose 86% in 1999 alone. Companies had only to announce a hopeful “internet strategy” to see their share prices soar. And the key point is that it went on for ages. Alan Greenspan, the then chair of the Federal Reserve, used the phrase “irrational exuberance” to describe the mood in stock markets as early as December 1996, more than three years before the bubble finally burst. Greenspan infamously went on to supercharge the latter stages of the mania by cutting interest rates three times in 1998 after a currency crisis in Asia and the collapse of a huge hedge fund, Long-Term Capital Management.

Everybody at the time half knew it had all gone too far, too soon, but the greater danger, career-wise, was often to sit it out. Poor Tony Dye, one of London's top fund managers, earned himself the nickname Dr Doom for predicting an imminent stock market crash for about five years; he lost his job at Phillips & Drew just before his prophecies came true.

The dotcom disaster explains the current crop of analysts' notes asking where today's AI bubble - because that's what it clearly is - fits in a 1990s timeline. The broad parallels are truly close.