Is Nvidia the next Cisco?

Last Wednesday, Nvidia's share price crossed $1,000 after the company exceeded Wall Street's expectations for the quarter and raised its estimate for the next quarter. As if that wasn't enough, the company more than doubled its quarterly dividend and announced a 10-for-1 stock split. As I write, the stock is trading at $1,110 a share.

I saw this chart a few weeks back and thought it was... interesting.

The resemblance looks striking from afar. But then you consider that the FT had to change the price scale for Nvidia and Cisco. Then, it starts to look like a stretch. The gist is, could history be rhyming here?

“History Doesn't Repeat Itself, but It Often Rhymes” – Mark Twain

Is Nvidia the next Cisco?

I don't know. No one knows the answer to this question either. You'd have to go to the future to tell us the answer to this puzzle.

But this seems like an interesting thought experiment.

Why is Cisco relevant here?

One could say Cisco was to the Internet what Nvidia is to AI.

Cisco provided the essential infrastructure for the internet boom – the routers and switches that directed data traffic across networks. As internet usage exploded with the rise of new companies and online activity, demand for Cisco's products skyrocketed.

Investors saw Cisco as perfectly positioned to benefit from the ever-growing internet. With every new website, e-commerce platform, and online service, Cisco's equipment would become more crucial. This perceived endless growth potential fueled investor excitement and drove the stock price up.

The company's stock price soared, reaching a high of $80.06 per share in March 2000 from trading around $10 in March 1998; over 8x growth in 2 years.

After the dot com bubble burst in 2000, Cisco's share price fell to about $13 in March 2001. Since then, Cisco has become the poster child of stocks that peaked early and never recovered. I have picked on Cisco a few times in this newsletter for how their stock price has yet to recover to its 2000 peak.

You could also argue that the expectations investors were pricing into Cisco's share price was simply too high.

Nvidia's revenue for the first quarter ended April 28, 2024, was $26.0 billion, up 262% from a year ago! Nvidia is making in three months what used to take them a year to make! What if this growth or these revenue numbers are unsustainable? What if future expectations for Nvidia prove to be too high? Then the stock could struggle.

How's Nvidia different from Cisco in the dot com bubble?

In 1 sentence: Nvidia is significantly more profitable and much less expensive.

Yahoo Finance's iteration of this chart shows that perhaps Nvidia isn't as "overvalued" as Cisco was at its peak.

But does Nvidia have to get to that level of euphoria before we can say it's overvalued? After all, if you look at the chart and try to draw a straight line from where Nvidia's share price currently is relative to Cisco's price history, you'd see that it still took Cisco several years to recover to those levels.

So perhaps, that price was still rich.

And who knows, maybe humans have learnt from their mistakes of the past and stock markets won't let themselves get as euphoric as they did during the dot com boom.

Final Thoughts

What if Nvidia is the next Cisco? How do you know when the money train will stop? The short run can last for a lot longer than we expect.

What if Nvidia isn't the next Cisco? What if it's the Apple or Amazon of the next decade or more?

Only time will tell. But I thought this was an interesting thought experiment. What do you think?

In other news, Silver has outperformed gold in recent weeks, bringing its total gain to 33% year to date, compared to gold's 18% return in the same timeframe. UK stocks have been flourishing too. The FTSE 100 has hit several highs since I wrote this article.