Is this the return of the dotcom bubble?

The hottest topic in finance at the moment is whether the run-up in commodities is a bubble or a bull market. Whichever is true (we don't think it's a bubble, but bull markets often get ahead of themselves), this is deflecting attention from the return of the best-known bubble of all: the internet sector. The internet, of course, didn't vanish along with all those dotcoms, says Adam Lashinsky in Fortune. While investors were "licking their wounds", the internet industry kept developing new ways to use the technology that created all the fuss in the first place. Internet phone calls, downloadable music and films, high-speed web access on mobile phones are now all part of everyday life. Everybody uses Google, which makes billions of dollars and the iPod is the "hottest toy on the planet", making $4.5bn of sales for its parent, Apple. The difference between now and 2000 is that at $400, Google shares trade on about 33 times Wall Street's estimates of 2007 earnings, "hardly stratospheric". Compare that with Internet Capital Group's shares, which at their peak traded on more than 400 times the firm's 2001 revenues.

Even the disgraced internet analyst Henry Blodget is back, blogging that the trends people were so excited about in those days are "very much in place" and will be for the next 20 to 25 years. So what's happened? The digital transformation of the media business much talked about in the late 1990s is becoming a reality due to the rise of high-speed internet connections, say Kevin Allison and Aline van Duyn in the FT. Advances like this make it possible to watch video on the web easily. And this has helped fuel the "astonishing growth" in audiences for online networking sites such as MySpace.com founded less than three years ago and now the second most-visited internet site and YouTube.com, a site dedicated to user content. This sort of huge growth has attracted major media players, with traditional media firms such as Rupert Murdoch's News Corp developing digital strategies at speed. News Corp has been the most aggressive in the field and has lost no time making acquisitions, acquiring MySpace.com itself last year as part of an overall $1.5bn spending spree.

In the first quarter of the year, US venture capitalists spent $396m in the media and entertainment sector, 80% more than in the previous quarter and the biggest amount for four years, with analysis showing that about half the media investments were in firms focused on the internet. This spending is key, since venture capital is the "starter fuel" needed for the birth of early-stage firms that will yield future results, says Ken Olisa in New Media Age. Since the dotcom "winter", this tap has been turned off in the US and Europe, but now it's running again. Also vital is the ability to raise money by listing on the world's equity markets. Although the SEC, the US market regulator, is beginning to make it harder for smaller firms to be listed on a US exchange, others, such as London's Aim, are more accommodating. As a result, the latter is well on its way to being "the global market of choice" for early-stage firms such as internet companies.

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With the bursting of the dotcom bubble, better-managed firms cut costs and survived by focusing on profits while the others went bust. Now that investors are moving from value stocks to growth stocks, they're left with an attractive pool of well-managed firms with growing revenues. And whereas in the tech boom, p/e multiples were high for stocks in this area, valuations have normalised. Not a bubble then yet.