Driven by high expectations and a good deal of hype, high-technology companies' stocks soared, reaching their peak in February 2000. Since then, they have been mostly sliding. The bursting of the speculative bubble hacked 90 percent off of the prices of some Internet stocks, and the question analysts are asking now is whether the stocks will return to their previous high prices.
To stock broker Don Rowe in Sarasota, Florida, the huge run up in Internet stock prices between 1998 and 2000 was a speculative bubble.
There was, he says, euphoria about the Internet and its capacity to revolutionize the way we do business.
One company, Ariba, may be typical. Ariba, which produces software for what is called business-to-business Internet transactions, saw its stock price rise by 600 percent, from $25 to $170, in just six months. But from that peak in early 2000, Ariba's stock has subsequently fallen by 98 percent to $4 today.
To Don Rowe this was a classic stock market bubble. Mr. Rowe said, "It was a bubble because an excess amount of money was chasing too few stocks. You had trillion of dollars chasing only about 500 stocks. It was bound to produce a bubble."
The Nasdaq stock market index peaked at 5,000 in early 2000. Today the index is nearly 60 percent lower at 1900. Trillions of dollars in gains turned into trillions of dollars in losses. Michael Perkins is a founder of Red Herring magazine in San Francisco. In 1999 Mr. Perkins co-authored a prescient book on what he daringly called the Internet bubble.
Mr. Perkins says he was and still is skeptical about the concept of a new Internet-based economy. "What's interesting," he said, "is that when we looked into the history, every time there was some kind of boomautomobiles, railroads before that, the 1960s, there was always this rhetoric about there being a new economy. And what it was was the same old economy, growing but not necessarily different from previous eras."
Another analyst, David Hale, chief economist of the Zurich Group in Switzerland, concedes that there was an Internet stock market bubble. He agrees that the prices of companies like Yahoo, Amazon, and Ariba are unlikely ever to return to their bubble era peaks.
But Mr. Hale has no doubt that there is a new Internet based economy that is changing people's lives. "There is no doubt that 12 to 18 months ago we had a very frothy stock market," he said, "which led to a great many speculative excesses. But the obvious analogy to this is the railway boom in Victorian England in the 1850s when there was also a great stock market boom and more than 1,000 companies applied to parliament for licenses to launch new railways. And things got out of control. But in the half century that followed railways substantially transformed the British economy. And the same will be true of the Internet phenomenon in the United States."
Since the U.S. stock market touched its current bottom, in the two weeks that followed September 11, the market has moved up substantially. Optimists say a new bull market may be at hand. The stocks that have performed best since the September lows have been high technology and Internet related companies.