Source: Wall Street See
After the bursting of the internet bubble, the stock prices of Cisco Systems and Intel, which had been riding high, plummeted and have yet to fully recover to their bubble-era highs. The highly similar rise of Nvidia has made many people worry that it will follow the same path as Cisco and Intel.
After reaching its historical highest market cap and briefly exceeding that of Microsoft and Apple to become the world's number one in terms of market cap, its stock price fell nearly 13% in the following three trading days, and its market cap evaporated by US$430 billion. This scene cannot help but remind people of the situation at the beginning of this century: after the burst of the internet bubble, once-high stock prices plummeted and have not fully recovered to the high point of the bubble period to this day. The highly similar rise of NVIDIA has made many people worried that it will follow in the footsteps of Cisco and Intel.$NVIDIA (NVDA.US)$In the three following trading days, the stock price fell nearly 13%, leading to a 430 billion US dollar loss in market cap.
This scene cannot help but remind people of the situation at the beginning of this century: after the burst of the internet bubble, once-high stock prices plummeted and have not fully recovered to the high point of the bubble period to this day.$Cisco (CSCO.US)$ and $Intel (INTC.US)$The highly similar rise of NVIDIA has made many people worried that it will follow in the footsteps of Cisco and Intel.
The highly similar rise of NVIDIA has made many people worried that it will follow in the footsteps of Cisco and Intel.
Will the "Cisco moment" be staged?
Cisco benefited from the popularity of the Internet, while NVIDIA is the largest "shovel seller" in the era of generative AI. Therefore, these two hardware giants are often compared. Whenever NVIDIA's stock price drops significantly, discussions about the "Cisco moment" becoming a reality become popular in the industry.
In the late 1990s, the Internet quickly became popular in the United States. As the "king" of network infrastructure such as routers and switches, Cisco's market cap soared and reached an astonishing 550 billion US dollars in March 2000, surpassing Microsoft to become the world's most highly valued company.
Cisco's stock price soared more than 1,000 times during its first decade of trading after listing and reached a historical high of 80 US dollars in March 2000. However, after the burst of the internet bubble, Cisco's stock price plummeted to a low point of 8.60 US dollars in October 2002.
To this day, although Cisco's stock price has rebounded to around 47 US dollars, it is still far from its peak during the bubble period.
According to Jonathan Krinsky, the chief market technician at BTIG, NVIDIA's stock price is currently trading about 100% above the 200-day moving average. Since 1990, the largest gap between a US company's market cap and its stock price being above the 200-day moving average was 80%, which Cisco reached in March 2000.
"Although we fully realize that the fundamentals are very different this time around, NVIDIA has risen 4,280% in the past five years, compared to a 4,460% increase for Cisco prior to its peak in March 2000," Krinsky said.
"1999's Intel"
In addition to Cisco, Intel's similar experience has also made the market worried about NVIDIA's future.
As a global semiconductor giant, Intel's stock price reached a historical high of 75.89 US dollars in August 2000. After experiencing a crash caused by the burst of the internet bubble and a recovery brought by generative AI, its stock price is now at 30.57 US dollars, more than half lower than its historical peak.
Nicholas Colas, co-founder of Data Trek Research, compared NVIDIA today with Intel in the 1990s and found that NVIDIA's business model is "significantly better" than Intel's on "every indicator that matters to stock investors."
Colas wrote in a report on Monday that NVIDIA's revenue for fiscal year ending in January 2024 is basically the same as Intel's sales after inflation adjustment at the end of the Internet bubble in 2000, but this AI pet on Wall Street will achieve sales of US$120 billion this year, which is basically twice that of 2023 and did not experience a sales decline like Intel in 2001. In the period when the internet bubble burst, where Intel declined, NVIDIA's (strong) momentum has continued.
Colas said that NVIDIA's current performance is much better than Intel's peak during the internet bubble. For example, in 2000, Intel's net profit margin was 31.2%, while NVIDIA's net profit margin in 2023 was 48.9%. Intel's return on equity in 2000 was 28.2%, while NVIDIA's return on equity last year was 69.2%. NVIDIA's current profit margin and return on equity are 57%-145% higher than Intel's peak in 2000, and it has achieved this goal with only one-third of the number of employees.
Meanwhile, according to Data Trek Research compiled data, during its heyday in the late 1990s, Nvidia invested more in research and development than Intel. By 2023, Nvidia's R&D-to-sales ratio will reach 14.2%, while in 2000, Intel was at 11.6%.
In addition, adjusted for inflation, Nvidia's current market cap of over $3 trillion is six times that of Intel's $510 billion in 2000. Colas said that adjusted for inflation, Nvidia's market cap is also nearly 300% higher than Microsoft's market cap during the peak of the internet bubble.
Colas said:
Most importantly, there are many reasons why Nvidia has reached the highest global equity valuation, and whether it continues to hold this position will depend on the market's sustained confidence in its fundamentals.
He also added that given the volatility of the semiconductor industry, his team would not be surprised to see some volatility in the stock in the coming weeks.
(Nvidia) is not Intel of 1999, but it is better equipped to maintain investor confidence.
Editor/tolk