In the early 1990s, borrowing money from banks was easy because of low interest rates and many people used this money to invest in new technologies. At the same time, technology was advancing quickly. In December 1994, Netscape Communications Corporation launched its web browser, Netscape Navigator. This browser was popular because it was easy to use and introduced exciting new features. When Netscape went public in August 1995, its stock price nearly doubled on the first day, closing at $58.25, which gave the company a value of about $2.9 billion. This success drew huge attention to the tech industry and sparked a rush of new tech startups.
Investors were excited by the idea of making large profits by investing in technology. Many of them started putting money into companies with “.com” in their name, often without looking at whether these companies had good business plans. These startups offered a variety of online services, like pet food delivery, online bookstores, and information directories. Many companies relied on the hype that the investors created to get investments, even though they had no clear way to make profits from their business model. For a while, this worked, and tech stock prices continued to climb.
By March 2000, the NASDAQ stock market, filled with tech stocks, hit a peak of around 5,048 points. But as the demand for money grew, the U.S. Federal Reserve raised interest rates to manage inflation. This made borrowing more expensive, reducing the amount of money people wanted to invest. Investors became skeptical of the overvalued tech companies and saw that many lacked solid business foundations/models. They found that their invested companies could not return as high a profit as they had expected.
In response, people began selling off tech stocks, causing prices to drop sharply. By October 2002, the NASDAQ had fallen by roughly 78% from its peak, leading to massive layoffs and the collapse of hundreds of dot-com companies. This crash became known as the dot-com bubble burst.
