Internet Bubble

DEFINITION of 'Internet Bubble'

A rapid rise in equity markets caused by speculation into online-based companies (referred to as dotcoms).

The internet bubble of the late-1990s is often considered a benchmark case of investors abandoning fundamentals in their search for the next big thing. As consumers flocked to the internet, investors were afraid that not becoming involved would be a huge missed opportunity. Venture capital companies and speculators poured money into internet startups during the 1990s in the hope that those companies would one day become profitable.

BREAKING DOWN 'Internet Bubble'

The internet bubble of the 1990s burst after more than five years of steady market growth, peaking on March 10, 2000. The collapse of many startup internet companies, along with several interest rate increases by the Federal Reserve, led to an economic recession precipitated by a rapid decline in the Nasdaq.