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Hello, and welcome back to Better Offline.

I'm your hostead z Tron and this is the third part of our series and one way AI bubble is worse than the dot com bubble, And today we're going to focus on a question what actually burst dot com bubble.

I should also be clear there is no clear answer to any question like this is kind of a kind of a difficult thing to pull apart.

But to start, we're going to need a comparison, and really the InVideo of the dot com bubble would be the companies making and selling the fiber optic cables themselves and the associated hardware.

In July two thousand, Corning, which made and still makes far more than just optical cables, became the largest supplier of fiber optic wires and ended two thousand and seven point one billion in revenue on an income of four hundred and twenty two million.

That's profit, baby.

I know we're not used to that because we talk about AI all the time.

By April two thousand and one, Corning had revised its earnings estimates down three times, estimating revenue for the year to be between seven point eight billion and eight billion.

Corning would eventually reveal net sales of six point two seven billion dollars with a loss of five point four ninety eight billion dollars for the year.

They tried to grow a little too fast.

They took out loans.

They did the thing that everyone does in this kind of era.

Fiber optic cable from firm JDS Uniphase, a conglomerate of different optical companies merged in nineteen ninety nine, would go on an acquisition spread to dramatically expand its fiber optic offerings, eventually crowning itself and this is from their own press release, the number one supplier of fiber ouptic components and revealing net earnings of two hundred and eight million in January two thousand and one.

In July two thousand and one, it would announce a thirty five percent decrease in sales quarter over quarter and a forty four point eight billion dollar decrease in the value of companies that it had acquired, on top of a net loss of four hundred and seventy seven million dollars in the quarter.

The stock would lose ninety nine percent of its value before an eventual rebrand and collapse Okay, so now you know all that crab.

Let's get more specific.

Nvidia currently represents seven percent of the S and P five hundred, with a market capitalization of somewhere in the region of four trillion dollars.

In September two thousand, je Uniphase made up point seven percent and Colling zero point six nine two percent of the S and P five hundred when it totaled, and it is surprisingly difficult to find the exact number, around eleven point seven trillion dollars in total, with the highest weighted tech stocks being Cisco at three point one percent, Microsoft are two point five percent, Intel at two point two percent, Oracle at one point seventy five percent, and EMC at one point seven percent.

Now I've had some bright sparks when I've made this point online, say ed ed, what about no hotel?

Nortel was at one point four percent, Loocent was at point eight eight percent.

Wasn't the same thing?

In simpler terms, the dot com bubble didn't burst because of the market subsession with one company, but evenly distributed in an incredibly vague sense that the future was going to be online and we all need to be involved.

The world didn't wait with baited breath for every single earnings announcement from Corning or Jduniphase, nor did the health of the market depend on the continued ability to bet and raise revenues that Echelon's higher than any other company in the market.

Now, the problem with trying to find an exact comparison is that fiber optic cabling and GPUs are fundamentally different things, requiring, amongst other things, massive optical network terminals to actually turn big looms of cable into actual Internet connections.

And well, I guess that you could compare that to a data center.

But all of that stuff, as big as it sounds, eh, nowhere near as big as a n AI data center, Nor was it as power intensive, nor did they require to build an entire fucking gas power station in the middle of Texas for it.

The massive costs associate with the fiber buildout could make Nortel or loosen to each boasted record revenues in two thousand and then got the shit kicked out of them in two thousand and one.

The invidios of the dot com bubble, if you're really one though, way, I must insist that they think that we're we're going through our own thing.

We're at the beginning of history, not the end of it.

In any case, they're the only real revenue comparison.

In Vidia's last quarterly revenue was fifty seven billion dollars, with around eighty eight percent of that coming from its state at center Vertigo, where it sells GPUs and the associated networking gear.

In Loosen's case, the Service Provider Network segment, where it bundled all its telecoms infrastructure like optical networking and switching phere.

It's two thousand nine yearal rapport accounted for seventy eight percent of its thirty three point eight billion dollars in revenue, a slight improvement from ninety ninety nine when it was eighty one percent and ninety ninety eight when it was eighty three percent.

For Nortel, the comp was its Service Provider and Carrier segment, which made eighty two percent of its thirty billion dollars in revenue in two thousand.

It gets a little confusing at this point when you try and work out whether they're either of their net incomers.

Loosen had to restate revenues in two thousand and Nortel had to do so for two thousand and one, two thousand and two, and two thousand and three, thanks to creative accounting principles that, in Nortel's case, overstate revenue by nearly two billion dollars.

Pobody's nerveffect I guess nevertheless, for two thousand loose and booked one point twenty one to nine billion dollars in net income, and Nortel well, okay, whoopsee doodle, they lost two billion dollars.

Yes, things are materially different in the AI bubble.

In Vidia posted thirty one point one to nine billion dollars in net income it's last quarter, and if we are to believe, take in Baron's marketing arm for Nvidia, who acts like a fucking cheerleader its largest customers of printing money to the point that there's simply no reason to worry.

And in some ways they're right.

In Vidia prints money, It's incredibly profitable, has a virtual monopoly over the GPUs behind the AI bubble, and it can effectively set prices at whatever it wants to.

Similarly, the companies that are buying the most GPUs, Microsoft, Meta, Google and Amazon are all incredibly profitable themselves, which is really easy if you don't think about it for more than a minute to take to mean that in video won't end up like loosent, Nortel, or any other dot com casualty.

Now, I need to be very clear about something.

Just because Nvidia isn't like Nortel or loosened doesn't mean that things aren't bad.

And just because some of the companies that buying these GPUs are profitable doesn't mean that all of them are or won't die on their asses the moment the debt train stopped showing up.

Okay, So to really simplify the comparison here, the debt part of the dot com bubble was about customers of telecommunications companies taking on debt and the telecommunications companies themselves taking on debt to service these contracts.

These companies also did a number of aggressive acquisitions, many of which had to be marked down.

As I've mentioned, Loosened, Nortel and many of the other tailcom's companies building out Internet infrastructure would also loan money to their customers in a thing called vendor financing, leading them to have to write off hundreds of millions of dollars of debts.

When these customers collapsed, and in fact Windstar, a company that did a massive deal with how you may remembered this with the Enron series, they ended up their bankruptcy.

People ended up suing Loosen and getting hundreds of millions of dollars.

In fact, that's a great place the start to make the comparison.

Nortel's largest deals included a multi billion dollar contract to sell stuff to now world famous fraudster's world Com, a bizarre three billion dollar managed services deal with global IT firm computer scientists that involved two thousand Nortel employees moving into the company, and a one point four billion dollar, ten year long deal with England's Cable and Wireless Group to build and operate the cable and wireless internet backbone throughout Europe and North America that was quickly underwater.

Loosen steals included a five billion dollar deal with Verizon and a one point four billion dollar deal with other carriers to supply tech to Chinese Unicorn.

Money was flowing, but it was all in these weird directions with people that couldn't necessarily afford it or that would lose.

Everybody involve money.

The comparison starts to drift when you talk about revenue centralization.

Loosened, Nortel and other dot com bubble telecoms companies had a variety of deals in the one hundred million dollars to three hundred million dollar range and many more that were in the twenty million dollars to fifty million dollar range.

In two thousand eight, and t account for ten percent of Loosen's revenue and Verizon thirteen percent.

Nortel sadly didn't disclose its revenue breakdown by customer.

Nortel was, however, Calling's largest customer for optical cable and fun fact, Loosen also made optical cable and was the second largest provider in the business.

Despite what JDA Uniphase said, JDA uniforse, you fucking lied to me that one's just for Phil.

Phil brought on.

You're listening to this, you're going to hear that you can go.

I fucking hated jediuniphase or JDS uniphase.

I learned about this company a month ago.

I hate them, but that revenue centralization is very important.

In Video's revenue is extremely centralized.

In its last earnings, in Video noted that sixty one percent of its revenue came from four unnamed companies, and for years somewhere between eighteen percent and forty percent of its revenue has come from anywhere from doing two and four companies, none of which it names.

This is critically important because in video represents, as I said, seven percent of the value of the S and B five hundred and the markets have an unhealthy relationship with its stock freaking out in August twenty twenty five, when year of a year growth was only I am not fucking with you, expected to be around fifty percent year every year, people were freaking out.

They dumped the stock for over a month.

It was crazy.

As a result, any stock panic caused by Nvidia will naturally drag down the entire market with him.

The dot com bubble was, as I've discussed two things, the bullshit dot com bubble from websites and the telecommunications bubble caused by massive overbuilds of fiber optic and internet services.

When the bubble burst, it was caused by rising interest rates increasing the cost of borrowing, and the markets realizing that these unprofitable companies wouldn't survive long term, and then venture capital being depleted and I realized it's tempting to claim we're in the same situation, but I must I must insist it's really quite different.

At the time, venture capital was much much smaller.

For the following numbers, I'm going to give you the numbers sug justed for inflation, otherwise I'm going to be here all fucking day.

US venture capital invested twenty three billion dollars in ninety ninety seven, twenty eight point twenty one billion dollars in ninety ninety eight, ninety five point five billion dollars in ninety ninety nine, and one hundred and ninety seven point seven one billion dollars in two thousand, for a grand total of three hundred and forty four point five billion dollars, a mere six point two billion dollars more than the three hundred and thirty eight point three billion dollars raised in twenty twenty five alone in venture capital was somewhere between forty and fifty percent of that around one hundred and sixty eight billion dollars going into AI investments, and in twenty twenty four, North American AI startups only raised around one hundred and six billion dollars.

HiT's growing HiT's happening more the dot com bubble burst when the bullshit dot com stocks died on their ass and the world realized that the magic of the Internet was not a panacea that would fix every business model, and there was no magic moment where a company like webvan or pets dot Com would turn into this magical profitable beast from a horribly unprofitable business.

Similarly, companies like Loosent Technology stop being rewarded for doing dodgy circuit that deals with companies like Windstar, leading to the collapse of the telecommunications bubble that led to millions of miles of dark fiber being sold dirt cheap in two thousand and two.

The oversupply of dark fiber was eventually seen as a positive, leading to an eventual surge and demand as billions of people came online toward the end of the two thousands.

Now, I know what you're thinking, Ed.

Isn't this exactly what's happening here in the AI bubble?

Isn't this the same thing.

We've got overvalued stars, We've got multiple unprofitable, unsustainable AI companies promising to IPO, We've got overvalued tech stocks, and we've got one of the largest infrastructure buildouts of all time.

Tech companies are trading at ridiculous multiples of their earnings per share, but the multiples aren't as high.

That's good, right, No, it isn't.

It isn't.

AI boosters and well wishers are obsessed with making this comparison because saying things worked out after the dot com bubble allows them to rationalize doing stupid, destructive, and shitty things.

Even if this was just like the dot com bubble, things would be absolutely fucking catastrophic.

The NASDAG drops seventy eight percent from its peak in March two thousand, this time due to the incredible ignorance of both the private and public powerbrocus of the tech industry.

I expect consequences that will range from horrifying to calamitus, depending almost entirely on how long the bubble takes to burst and how willing the SEC is the greenlight and IPO of Open AI or anthropic.

I'm very worried, and tomorrow I'm going to finish up this series with a somewhat dark note.

Then we need to stop pretending that this will be a smooth landing or that anything will be left in its wake worth keeping.

Thank you for listening to Better Offline.

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