Recently, I’ve spotted several article headlines warning Nvidia (NASDAQ: NVDA) investors to be cautious because its stock’s recent big run-up shares key similarities with Cisco Systems (NASDAQ: CSCO) stock’s huge run-up inside the Nineties before it crashed in 2000 when the dot-com bubble burst. In just one yr, Cisco stock plummeted 77% after hitting its all-time high on March 27, 2000.

Let’s dig into the qualitative the rationale why the comparison of Nvidia now to Cisco inside the late Nineties will not be one. A second article on this topic will give attention to the quantitative reasons, including differences in profit margin trends and stock valuations.

Nvidia 2024 = Cisco Systems late Nineties theory has more holes than an AI supercomputer has GPUs

The above subheading is a reference to Nvidia’s business — and yes, it’s an exaggeration because artificial intelligence (AI) supercomputers can have tons of of graphics processing units (GPUs).

Nvidia is the dominant maker of GPUs for accelerating the processing of AI and high-performance computing (HPC) workloads in data centers. It has an estimated 90% share of the information center AI GPU chip market, and 80% share of the overall data center AI chip market. It also targets other markets, but its data center business is its largest, accounting for 83% of its revenue last quarter.

To be clear — I’m not saying Nvidia stock is proof against an enormous decline or perhaps a crash. Little doubt, it can plunge if the company’s GPUs lost their status since the favored chips for speeding up the training of AI models and the running of AI applications in data centers, and if it didn’t develop whatever tech had displaced GPUs for these fast-growing uses. My premise is solely that the comparison of Nvidia now to Cisco inside the late Nineties isn’t one. The similarities are only surface deep.

Key qualitative differences between Nvidia now and Cisco inside the late 199Os

Cisco’s CEO inside the below chart refers to John Chambers, who led the company from 1995 to 2015. Cisco was founded in 1984 by two Stanford University computer scientists and went public in 1990.

Story continues

Nvidia has had only one CEO since its founding in 1993, co-founder Jensen Huang. The company went public in 1999.

*In keeping with public records. **LAN = local area network; WAN = wide area network. *** Generative AI is the tech behind OpenAI’s extremely popular ChatGPT chatbot, released in late 2022.

Studies support the concept that stocks of public corporations run by founder-CEOs are inclined to perform higher over the long term than those run by non-founders. Huang is a co-founder of Nvidia; Chambers was not involved in founding Cisco.

Huang’s educational and work background before starting Nvidia was in electrical engineering and semiconductor design, respectively. These features give him a serious advantage over CEOs of technology corporations whose backgrounds are frequently not as technical, in my view.

Cisco’s moat to take care of competition at bay inside the late Nineties was not as high as Nvidia’s current moat. Nvidia’s mighty moat will not be just attributable to the complexity of its products, but as well as stems from the proven proven fact that its ecosystem is large and growing, due to its early mover status in the information center AI chip space. This ecosystem includes “over 4.7 million developers worldwide using CUDA and our other software tools to help deploy our technology in our goal markets,” the company said in its annual report filed in February.

The moat differences will probably be more evident in my second article on this topic specializing in quantitative features. Suffice it to say here that Cisco’s profit margins were steadily declining for just just a few years before its stock plunged. One fundamental reason was competitive pressures on pricing. Nvidia’s profit margins are currently at record highs.

Let’s move to the last category inside the chart — growth strategy. Cisco inside the Nineties was an organization equivalent of the long-lasting video game Pac-Man — it devoured a great deal of corporations. From 1993 through July 2000, the company “acquired or announced our intent to amass 65 corporations,” it said in its fiscal yr 2000 annual report.

Nvidia, nonetheless, is generally growing organically. Granted, it relatively recently made one huge acquisition, Mellanox, nevertheless it had already been growing at a robust pace before this deal. In other words, Nvidia didn’t should “buy growth.” And prior to this acquisition, Mellanox was a Nvidia partner, not a competitor, so it didn’t buy the company with a purpose to eliminate a competitor.

Growth strategies that heavily give attention to acquisitions are very difficult to pull off successfully. They take the time and a highlight of top execs away from specializing in internal innovation. They eat up money that will thoroughly be spent on research and development. In addition to, it’s difficult to meld different corporate cultures.

Not surprisingly, Apple, one among the vital successful and modern corporations of the last few a few years, is known to prioritize organic growth.

Do you’ve to take a position $1,000 in Nvidia immediately?

Before you buy stock in Nvidia, consider this:

The Motley Idiot Stock Advisor analyst team just identified what they consider are the 10 best stocks for investors to buy now… and Nvidia wasn’t one among them. The ten stocks that made the cut could produce monster returns within the approaching years.

Stock Advisor provides investors with an easy-to-follow blueprint for achievement, including guidance on constructing a portfolio, regular updates from analysts, and two recent stock picks every month. The Stock Advisor service has greater than tripled the return of S&P 500 since 2002*.

See the ten stocks

*Stock Advisor returns as of April 4, 2024

Beth McKenna has positions in Nvidia. The Motley Idiot has positions in and recommends Advanced Micro Devices, Apple, Cisco Systems, and Nvidia. The Motley Idiot recommends International Business Machines. The Motley Idiot has a disclosure policy.

Nvidia Stock Is Like Cisco Stock Before the Dot-Com Crash? There Are Big Holes in This Theory was originally published by The Motley Idiot