The purest case of narrative unmoored from numbers, and the one most relevant to any analyst living through a technology hype cycle. Displacement: entirely real. The commercialization of the internet in the mid-late 1990s genuinely was a world-changing technology (this is the seductive kernel again: the displacement was true).
How did the dot-com bubble inflate and burst?
Boom & euphoria: capital flooded into anything internet-related, and then came the fatal turn, which was that valuation was abandoned for narrative. "Eyeballs," "page views," and "first-mover advantage" replaced revenue and profit; companies with no earnings and often no revenue IPO'd to billion-dollar valuations; the joke was that a company's stock rose faster if it lost more money (proof it was "investing in growth"). The Nasdaq ran to 5,048 (March 10, 2000); Cisco briefly became the world's most valuable company at ~$550bn on a P/E north of 150; pets.com, Webvan, and eToys became bywords for the mania, burning cash on Super Bowl ads with no path to profit. In India, the same fever produced the "ICE" (Information-Communication-Entertainment) boom and Ketan Parekh's "K-10" stocks (Himachal Futuristic, Global Telesystems, DSQ Software, Zee), while Infosys, Wipro, and Satyam soared.
Trigger/Minsky moment: the Fed had been hiking; cash-burning companies could not refinance; the supply of new "greater fools" ran out; and sentiment cracked in March 2000. The crash: the Nasdaq fell ~78% to ~1,114 by October 2002. Most dot-coms went to zero. Even the winners were devastated: Amazon fell over 90% (~$113 to ~$6) and Cisco nearly 90% (from an $80.06 close in March 2000 to under $9 in October 2002), and Cisco took a quarter of a century, until December 2025, to close above its 2000 peak, despite growing into a fine business. India's tech and K-10 names collapsed similarly.
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What is the lesson for analysts?
Lesson (the analyst's core takeaway): a true, world-changing displacement can still produce a catastrophic bubble. Being right about the technology is not the same as making money on the equity. Amazon the company was one of the great successes in history; Amazon the stock, bought in March 2000, took a decade to break even. Valuation always matters; a wonderful story bought at any price is a bad investment. This is exactly why M3.05 teaches the reverse DCF, which asks what growth is the price implying? The discipline that would have saved you in 2000 was asking what a P/E of 150 must be pricing in for Cisco, and whether that was remotely achievable, and getting an answer that was obviously absurd.
The dot-com bust is the case that turns "narrative and numbers" (Damodaran) from a slogan into a survival skill.