Capital discipline is paramount—fundamentals ultimately matter
The worst failures of the internet boom were the companies that could not finance their own growth and had no tangible plans to earn a return on capital. Not all financially strong companies had an easy time in the bust, but these companies at least survived and delivered some value to their shareholders over time. Capital discipline is necessary not just for corporations but also for investors. Those who invested in profitable, well-capitalized tech companies in 1996 fared well over the long term. Those who piled into speculative companies at the height of the mania while eschewing “old economy” stocks often experienced significant losses.
Picking winners (and losers) is hard—better to own a diversified portfolio.
With hindsight, picking winners looks easy. But even once seemingly invincible companies, such as Intel, can falter, and some of the biggest winners of the internet revolution only emerged later. Likewise, picking losers is difficult, as technology and its use evolve in unexpected ways. For example, while some prognosticators predicted the end of using office paper, the spread of personal computing and printing peripherals actually increased paper use for many years. The evolution of GenAI will also be unpredictable, and it is likely that some of the greatest GenAI companies have yet to emerge.
Technological progress benefits us ALL—stay invested and diversify
The internet excesses that culminated in the bust were extremely painful and capital destructive. Despite the massive misallocation of much capital, some of that capital built useful networks, software, and databases, creating a framework to launch great businesses and increase productivity. While dot-com companies were once seen as niche businesses, every company now has a website. Households enjoy the convenience of online shopping from a myriad of businesses. Zoom would not have been possible without prior broadband investment.

Large language models (LLMs) that read and process thousands of documents in seconds consume large amounts of energy. As use of these models spreads, the competition for energy resources could drive prices to a level that would make certain GenAI activities uneconomic. Additionally, as governments and companies increasingly commit to environmental goals, would society continue to allocate energy resources towards GenAI? Could GenAI continue to grow without cheap computing power, which increasingly means cheap energy?
New technologies always spawn some level of fear and distrust. While the internet emerged during a time of de-regulation, the tech bust and the Great Financial Crisis curtailed that ethos. Today, our society is more amenable to reigning in large tech and new tech. Already, copyright challenges are putting limits on the amount or types of information that GenAI models can use. Regulation could emerge in other areas as well, including privacy, safety, and discrimination. Can the cost of adaptation be overcome?
The internet emerged during a long period of globalization. The Berlin Wall had fallen, the number of former communist nations was increasing, and movement of goods as well as human capital flowed more freely. This global integration provided resources in capital and human capital to make rapid progress in technology and business ideas. With today’s world possibly on a path of de-globalization, there could be a sustained trend of rising barriers to the movement of people, capital, and ideas. Will the necessary resources be available to make the rapid advancements that a GenAI boom would require?