Is Nvidia’s 2023 Growth a Replay of Cisco’s 1999 Boom?

Is Nvidia's 2023 Growth a Replay of Cisco's 1999 Boom?
Image: Nvidia

Have you ever wondered how tech giants like Nvidia and Cisco stack up against each other over different eras? It is time to dive into this interesting comparison.

First off, Nvidia, the big name in semiconductors, has been on a roll, tripling its stock value in just a year. This kind of success story isn’t new, though. Back in the 90s, Cisco Systems had a similar run. But as seen, Cisco’s success story had its ups and downs.

Presenting a valuable lesson for investors in the importance of fundamental analysis of stocks. Understanding the underlying factors that drive stock performance, such as company financials and market trends, is crucial for making informed investment decisions.

Cisco’s journey started with its IPO in 1990, and what a ride it was! Their stock skyrocketed over 1,000 times in a decade, hitting a high of $80 in March 2000. But then, the dot-com bubble burst, and their stock took a nosedive to just $8.60 by October 2002. 

Fast forward over 20 years, and Cisco still hasn’t reached those glory days of March 2000. In the last decade, its stock growth has been steady but not spectacular, its annual return has been around 11%, comparable to the Morningstar US Market Index (10.9%, including dividends) but trailing the Nasdaq Composite Index (14.6%, including dividends).

Now, the big question: Is Nvidia on a similar trajectory, or will it chart a different path like Apple? It’s crucial to look at how Nvidia and Cisco differ in their business models and the market scenarios of their times.

Nvidia’s current success is partly fueled by the growing interest in artificial intelligence. Its chips are a big deal in this tech wave. But remember, the stock market is still bouncing back from the 2022 bear market. Experts, like Chris Mack and Rick Schmidt, are seeing similarities between Nvidia’s current state and Cisco’s run in the 90s.

Nvidia’s Growth Story

Nvidia has been transforming rapidly. From 2017 to 2022, its revenue jumped from $7 billion to a whopping $27 billion. And guess what? This year, they’re expecting to double that to $58 billion, with predictions of hitting $100 billion by 2026. That’s a massive growth spurt!

The company’s market value has exploded, too, going from $32 billion in 2017 to an eye-popping $1.2 trillion. That’s over 37 times growth in just six years!

A big chunk of this growth comes from Nvidia’s data center business. The demand for computing power, especially for AI, is through the roof. This segment now makes up 56% of Nvidia’s revenue in 2023, a huge jump from just 12% in 2017.

Cisco’s Rollercoaster Ride

In the early 2000s, Cisco was the talk of the town with its fast-growing revenue and profits. It was crowned “the King of the Internet” and was even more valuable than Microsoft at one point, with a market value of $555 billion. But this glory was short-lived. The economic downturn and cuts in telecom spending after the internet bubble burst hit Cisco hard.

What’s different this time with Nvidia? 

Investors are pretty upbeat about Nvidia. It’s become a must-have in many investment portfolios. The average target price for Nvidia’s stock is around $666 per share, much higher than its current price. Right now, Nvidia’s trading at a forward EV/sales multiple much higher than its historical average. But keep in mind, Cisco hit a similar multiple back in April 2000.

Brian Colello from Morningstar points out some key differences between Nvidia and Cisco. Nvidia was already a pretty solid business before its growth spurt, unlike Cisco, which was more of a startup at its growth phase. Also, Nvidia’s products, especially in AI, are in immediate demand, which might help avoid the kind of overbuilding Cisco experienced.

Looking at the market today, it’s hard to say if it is a bubble. Some areas, like AI, might be closer to that point. Global economic conditions and inflation rates will play a big role in how things pan out for high-priced stocks, including those in AI.

Nvidia’s standing in AI is strong, thanks to its advanced tech and high demand. But do not forget, it’s growing in a time of rising interest rates, which is quite different from Cisco’s situation in the 90s. Nvidia’s competitors, like AMD and Intel, are also eyeing the lucrative AI market, which could shake things up.

For long-term investors, keeping an eye on the fundamentals is key. Nvidia’s got a strong grip in the GPU and AI software space, which is good news for its future. However, its current high valuation might not be everyone’s cup of tea. As always in the stock market, it’s a mix of watching the trends and playing the long game.

Final Thoughts

Comparing Nvidia in 2023 with Cisco in 1999 reveals intriguing insights into the tech stock landscape. Nvidia’s remarkable growth, driven by its dominance in the AI and data center sectors, echoes Cisco’s impressive rise in the ’90s. However, the contexts of their growth are different. Nvidia’s strong position in the rapidly advancing AI market sets it apart, while Cisco’s growth was more vulnerable to market shifts and the dot-com bubble’s burst.

In essence, Nvidia’s current success showcases its robust market position and technological edge, but it also highlights the need for cautious optimism. The tech world is dynamic, with changing market trends and competitive pressures. For investors and tech enthusiasts, understanding these nuances is key to grasping the potential and challenges that lie ahead for tech giants like Nvidia.