Here's Why There Is An AI Bubble
And Why This Feels Like DotCom 2.0
The past few weeks I’ve spent a fair amount of time sourcing startups. And honestly? The AI hype is even bigger than I expected.
Quick stat to set the tone: in 2020, there were ~40k .ai domains. Today? 859k. That’s a 2,000% jump in just four years. Accelerators now have batches where 90%+ of the startups call themselves “AI-first.” A growing chunk of VCs are AI-only.
Take Y Combinator. Scroll through the last few cohorts and it’s the same soundtrack: “AI this, AI that.” If you’re really lucky, you’ll get the extra spice of “Lovable for X” or “Duolingo for Y.” (Yes, sarcasm intended.).
To make sure I wasn’t just imagining things, I checked manually. I went through ~300 signals from new companies and stealth founders. And yeah — apart from a tiny handful, every single one branded itself as an “AI startup.” Sometimes it’s real tech. Most of the time? Just an API wrapper, a shiny landing page, and a very confident founder thread on X. If at all.
So I asked myself: have we ever seen hype this concentrated in one sub-sector before? And if so, when? The answer was obvious: the Dotcom Bubble in the late 90s / early 2000s. And the parallels are… hard to ignore.
Quick Disclaimer: This isn’t meant to be a Michael-Burry-style crash article. No “everything will collapse” sermon. Rather, a (nearly) sober look at where opportunities and risks lie – and where I clearly see a bubble. If you think I’m off on something (or have a completely different take) drop it in the comments. Always happy to hear other perspectives.
The Dotcom Bubble – a quick recap
If you lived through it, skip this. If not, here is the quick refresher:
In the late ’90s, the internet was new, exciting, and mysterious. Everyone knew: something big was happening. But no one could say exactly what.
So companies were founded at breakneck speed. All you needed was a .com domain and a half-decent idea. Selling shoes online? Revolutionary. Cat food by mail? Jackpot. Business plans? Optional. Profits? Irrelevant.
Capital flowed like Red Bull at a nerdy startup party – fast, sweet, and with no concern for side effects. IPOs went through the roof. Billion-dollar valuations were the norm, even when revenues barely exceeded the local kebab shop.
The motto: “Doesn’t matter if it makes money – as long as it’s on the internet!” Growth at all costs, OG edition.
Then came the crash in 2000. Rates ticked up, a few analysts started asking uncomfortable questions, and suddenly investors went: “Wait… are these companies ever going to make money?” Spoiler: most weren’t (wow, surprise…).
The Nasdaq dropped 75% in two years. Pets.com became the synonym for “burning investor money.” A few survived – Amazon, eBay, Google. But 90% went under.
Sounds funny in hindsight. Yeah. And it doesn’t seem like it has much to do with today, right? But if you look closely, there are uncomfortable parallels with the current AI hype. Way too many, honestly.
Back to the present: AI Bubble?
To illustrate those parallels, I dug a bit deeper and decided to analyze some data. Here’s an overview of the main issues I found: