After the sharp decline of NVIDIA, will it become the next Cisco or Intel?

After reaching a historical high market value and briefly surpassing Microsoft and Apple to become the world's largest company by market value, NVIDIA's stock price fell by nearly 13% in the following three trading days, evaporating $430 billion in market value.

This scene inevitably reminds the market of the early 21st century: after the bursting of the Internet bubble, the once high-flying stock prices of Cisco Systems and Intel plummeted and have not fully recovered to the peak levels of the bubble era.

The highly similar rise and fall trajectory has made many people worry that NVIDIA will follow the old path of Cisco and Intel.

Is the "Cisco Moment" Happening Again?

Cisco benefited from the popularization of the Internet, while NVIDIA is the biggest "gold digger" in the era of generative AI. Therefore, these two hardware giants are often compared. Whenever NVIDIA's stock price experiences a significant drop, discussions about the "Cisco Moment" become popular in the industry.

In the late 1990s, with the rapid popularization of the Internet in the United States, Cisco, as the "king" of network infrastructure such as routers and switches, saw its market value soar, reaching an astonishing $555 billion in March 2000, surpassing Microsoft to become the world's most valuable company.

Cisco's stock price surged more than 1,000 times in the first decade after its IPO, reaching a historical high of $80 in March 2000. However, after the bursting of the Internet bubble, Cisco's stock price plummeted to a low of $8.60 in October 2002.

Even today, although Cisco's stock price has rebounded to around $47, it is still far from returning to the peak of the bubble era.

According to Jonathan Krinsky, Chief Market Technician at BTIG, NVIDIA's stock price has recently traded about 100% above the 200-day moving average. Since 1990, the largest gap between a U.S. company becoming the most valuable company and its stock price trading above the 200-day moving average was 80%, a level Cisco reached in March 2000.

"While we fully recognize the fundamental differences this time around, NVIDIA has risen by 4280% over the past five years, compared to Cisco's 4460% increase from five years before its peak in March 2000," Krinsky said.

"1999 Intel"

In addition to Cisco, Intel's similar experience has also raised concerns about NVIDIA's future.

As a global semiconductor giant, Intel's stock price reached a historical high of $75.89 in August 2000. After the collapse of the Internet bubble and the recovery brought by generative AI, its stock price is now at $30.57, more than halved from its historical peak

Nicholas Colas, co-founder of Data Trek Research, compared the current NVIDIA with Intel in the 1990s. He found that NVIDIA's business model is "significantly better than Intel" on "every metric important to stock investors."

In a report on Monday, Colas wrote that NVIDIA's revenue for the fiscal year ending January 2024 is basically the same as Intel's sales at the end of the 2000 Internet bubble after adjusting for inflation, but this artificial intelligence darling on Wall Street is expected to reach $120 billion in sales this year.

This is basically double that of 2023, unlike Intel's sales decline in 2001. Where Intel declined at the end of the Internet bubble, NVIDIA's (strong) momentum has continued.

Colas stated that NVIDIA's current performance is also far better than Intel's peak during the Internet bubble. For example, Intel's net profit margin in 2000 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 with only one-third of the number of employees.

Meanwhile, according to data compiled by Data Trek Research, in the late 1990s, NVIDIA's R&D investment exceeded Intel's, and by 2023, NVIDIA's R&D-to-sales ratio will reach 14.2%, compared to Intel's 11.6% in 2000.

Furthermore, after adjusting for inflation, NVIDIA's current market value exceeds $3 trillion, six times Intel's $510 billion in 2000. According to Colas, after adjusting for inflation, NVIDIA's market value is also nearly 300% higher than Microsoft's market value at the peak of the Internet bubble.

Colas stated:

Most importantly, there are many good reasons why NVIDIA has risen to the highest global stock valuation, and whether it continues to hold this position will depend on the market's continued confidence in the fundamentals.

He also added that given the volatility of the semiconductor industry, his team would not be "surprised" by "some volatility" in the stock in the coming weeks.

(NVIDIA) is not Intel of 1999, but it is more capable of maintaining investor confidence