What the Dot-Com Bust Teaches About Today’s AI Vendor Financing

Innovation has always opened the door to unprecedented market gains.

The personal computer… the internet… mobile connectivity… the cloud.

Every era has crowned new winners – and richly rewarded investors who spotted them early.

Take Apple (AAPL). The now-titanic firm began as a scrappy computer maker before reinventing itself with the iPhone and iPad. After going public in 1980 at around $22, it became the first U.S. company to hit a $2 trillion market cap in 2020.

Microsoft (MSFT) rode a similar wave. From its $21 IPO, it dominated the PC and internet-software era. And today, it trades above $470 – a gain of more than 2,100%.

Alphabet (GOOGL) defined the cloud era, and now it’s being supercharged by AI. Its revenue has exploded from just $3.18 billion in 2004 to more than $350 billion in 2024.

But every boom has a bust – and fortunes can vanish as quickly as they appear.

Look at Cisco (CSCO). The company went public in 1990 and soared as it became the backbone of the early internet, peaking around $80 in March 2000. Then the dot-com bubble burst. 

A bloated valuation, excess inventory, and deteriorating conditions hit hard. But what truly cemented the collapse was likely circular financing.

At the height of the boom, Cisco not only sold networking gear – it helped finance the internet service providers that were buying it, temporarily inflating demand. When those customers collapsed, Cisco was left holding bad loans and weak sales, making the stock’s bust unavoidable.

Today, similar financing fears have investors dumping AI names – especially Nvidia (NVDA) – as money moves in circles across the AI build-out.

But the real question isn’t whether the money loops. It’s whether that loop eventually lands on real, lasting end-market demand.

And that’s exactly what we’ll explore in today’s issue…

How AI Vendor Financing Works (and Why Investors Are Watching Closely)

At a high level, the AI stack today looks like this:

Nvidia + chipmakers → AI infrastructure players (hyperscalers, GPU clouds, lessors, data centers) → Model providers & AI apps → Enterprises & end users

Now layer the money that flows on top:

• Nvidia and other vendors do more than just sell chips; they invest in GPU clouds and infra startups, and offer great terms, long pay-later windows, or system-level deals.
• Infra players use vendor capital, debt (often collateralized by GPUs), and equity from VCs/strategics to buy more GPUs and build more data centers.
• Model providers & AI apps rent that capacity and resell it as AI APIs, chatbots, copilots, AI tools, etc.
• Enterprises & users pay subscriptions and usage fees. That’s the real cash that should propagate back up the stack and justify all of this.

So, when people talk about ‘circular money’ here, they’re pointing to the fact that Nvidia might invest in an AI infrastructure company… which then buys billions of dollars of Nvidia hardware… which lets Nvidia book huge revenue and earnings… which it can then recycle into more strategic investments.

It does sound sketchy. But here’s the key: Circular financing is only toxic if the circle never closes with real, external cash flow.

If the loop ends at a profitable customer – a retailer, bank, advertiser, etc. – who happily pays for AI-powered services because they work… then vendor financing is just an accelerant.

If the loop ends at hype and a balance sheet that never self-funds, then vendor financing is deadly…

Which is why so many folks are citing the fallout from the dot-com bust.

The Dot-Com Vendor Financing Cycle and the Lessons for AI Builders

Cisco wasn’t the only dot-com darling to go belly-up from circular financing. 

Back then, the stack looked like this:

Equipment vendors Cisco/Nortel/Lucent → Telecommunications firms & long-haul carriers (WorldCom, Global Crossing, etc.) → Dot-coms & enterprises → End users

Those telcos borrowed insane amounts of money to build long-haul fiber networks and internet infrastructure, financed via vendor loans, leasing arrangements… Some equipment vendors even took equity stakes in carriers who then bought more of their gear.

On paper, it all made sense. Internet traffic was exploding. Everyone expected we were moving into an all-IP, bandwidth-everywhere future. The mantra was basically: ‘If we build it, demand will show up – with thick margins.’

And for a while, they were right. Demand really was booming, just like it is with AI today.

But that didn’t last… 

Overbuilding, Overspending, and the ‘Dark GPU’ Parallel

The problem wasn’t that there was no demand. It was that companies built way more infrastructure than profitable demand could fill.

Telcos laid tens of millions of miles of fiber, much of which stayed ‘dark’ (unused). Supply vastly outpaced profitable demand. Bandwidth prices collapsed, and capacity became a commodity.

When financing conditions tightened, Telcos slashed capex. Many went bankrupt (WorldCom, Global Crossing, 360networks, etc.). Equipment vendors had to take massive write-downs on vendor loans and unsold inventory. And the whole vendor-financing flywheel seized.

The internet itself didn’t die. The financing structure did. And the ‘dark fiber’ became the symbol of what killed the cycle: too much infrastructure, not enough profitable end-market demand, and too much leverage in between.

That’s exactly what today’s AI bears are warning about – but now with ‘dark GPUs’ instead of dark fiber.