In the late 1990s, hundreds of internet companies suddenly appeared in New York City, many of them finding a home in Midtown South. Wall Street boomed, taking companies like Amazon.com and Pets.com public as their stocks soared.
But it didn’t last. When investors realized that the tech boom was a bubble, they abandoned the sector. The Nasdaq composite index plunged by 75% between March 2000 and October 2002. Investment dried up, and the vast majority of New York internet companies, like Pets.com, disappeared.
Even more dire, Wall Street contracted as profits plunged by two-thirds. It jettisoned some 35,000 jobs, or one in every four employees. The city’s finances, worsened by the costs of dealing with the 9/11 terrorist attacks, were so bad that Mayor Michael Bloomberg broke a campaign promise and pushed through a property tax increase.
The question in New York today is whether history is about to repeat itself.
Hundreds of artificial intelligence startups are putting down roots in New York, many in Midtown South, to take advantage of the city’s enormous talent pool and status as a global business center. The two most important companies — Anthropic and OpenAI — are building up their operations in what are likely to be their largest offices outside their San Francisco headquarters.
Just like two decades ago, Wall Street is booming, raising money for AI companies and prospering as investors send the stocks of those companies soaring. As a result, the securities industry is supporting the city’s economy and generating billions of dollars to cover up big problems in both the state’s and city’s budgets.
“New York City has ridden the AI boom more than anyone in America except San Francisco,” City Comptroller Mark Levine said. “We are financing the data center construction boom; our firms are running the initial public offerings.
“But New Yorkers don’t realize how our fate has been tied to the AI boom,” he added. “It’s not like San Francisco, where people who work for tech companies are the most prominent figures. Here it’s a step removed.”
Hits to City Budget
A bubble is when asset prices, like stocks or homes, increase so rapidly that they no longer reflect their fundamental value based on the profits they can generate. Could that be true for AI companies’ valuations today? As a recent Wall Street Journal article — “How to Know When the AI Boom Is About to Go Bust” — indicates, that’s the question on everyone’s mind.
New York City would feel the tremors almost immediately if Wall Street reels after an AI implosion.
“AI is [the] No. 1 earnings driver for big banks this year,” well-known Wall Street expert Mike Mayo told Yahoo Finance. “The capital demands from tech firms, utilities and related industries amounts to a 100-foot wave lifting Wall Street.”
The $25 billion securities firms earned in the second quarter of this year is 66% higher than what they earned in the same period a year ago. The $46 billion generated in the first six months of 2026 is 50% higher than in the same period in 2025 and is already two-thirds of the way to beating 2025’s record earnings. That $46 billion is also more than what the city’s budget assumes such firms will earn for the entire year.
Wall Street profits this year are “stunning,” according to the monthly economic newsletter from Levine’s office.
That wave lifts the state budget, where 20% of all revenue comes from Wall Street. The securities industry provides 9% of all city tax revenue, and when the state budget is flush, Albany can send more money to the city, which Hochul did this year with an additional $4 billion.
In 2001, tax revenues dropped by 5% when Wall Street contracted, according to the fiscal watchdog Citizens Budget Commission. The city had been planning on an increase in tax revenue, so when the dot-com bubble burst, a giant hole opened in the city’s budget.
Today, the Mamdani administration is already projecting a $6 billion budget gap for 2028. A 5% decline in revenue would turn that into a whopping $10 billion hole that would create the city’s worst budget crisis in more than a decade.
Levine told The City Reporter that the dangers posed by a Wall Street contraction are why he has consistently argued the city’s budget reserves are inadequate.
The Mamdani administration declined to comment on what an AI contraction and Wall Street plunge would mean for the city.
‘It Won’t Be Fun’
Even the biggest beneficiaries know the boom will end at some point.
“It’s getting close to as good as it gets,” JPMorganChase CEO Jamie Dimon said in July as the bank announced the largest quarterly profit any bank had ever produced. (JPMorganChase is a corporate sponsor of The City Reporter).
“We’re in a very healthy, active, exuberant market with very high prices and very high volumes,” he said. “We just don’t know how long it will continue.”
No one knows how severe an AI contraction will be. But many are worried. Michael Burry, a key character in Michael Lewis’ book “The Big Short” who foresaw the housing collapse and financial crisis of 2008, has said a collapse on a similar scale is coming sooner rather than later. Many are focused on this boom’s circular financing where Nvidia, the key supplier of AI chips, is also financing its customers. Nvidia has said it is solid enough financially to do this, but others doubt it.
Even if some AI companies disappear, many of their employees may have options, unlike workers hit by the dot-com bubble.
“It won’t be fun,” said Julie Samuels, CEO of the local industry trade group Tech:NYC. “The financial firms will sweep up the best engineers even if there is a downturn on Wall Street.”
Optimists like Cornell Tech Dean Greg Morrisett are unsettled by the parallels to the dot-com bubble but remain confident about the future.
“You get worried about a big reset,” he said. “I think it’s very analogous to the early 2000 with overhyped companies, like Pets.com, and froth in the markets, overhyping and underdelivering.”
But, he added, “Out of that emerged companies like Google,” which is the largest tech employer in New York, with about 10,000 workers.
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