Is Nvidia Stock Like Cisco Stock Before the Dot-Com Crash? There's a huge hole in the theory

Recently, I've found a couple of articles with headlines warning ofINVISTA (NASDAQ: NVDA)Investors should be cautious as the recent sharp rise in its share price is related to a recent increase in the price of its shares.Cisco Systems, Inc. (NASDAQ: CSCO)There are important parallels between the dramatic rise in stock prices in the 1990s and the collapse of Cisco's stock price in 2000 when the dot-com bubble burst. After hitting an all-time high on March 27, 2000, Cisco stock plummeted 77% in just one year.

Let's take a deeper look at why we compare Nvidia today with Cisco in the late 1990s.be on a par withThis is not desirable. The second article on this topic will focus onquantitativeThe reasons for this include discrepancies in profitability trends and stock valuation squares.

INVISTA 2024 = Cisco Systems Theory of the late 1990s has more vulnerabilities than the GPU of an AI supercomputer.

The small title on the top refers to Nvidia's business - yes, that's an exaggeration, as artificial intelligence (AI) supercomputers can have thousands of graphics processing units (GPUs).

Nvidia is a leading manufacturer of GPUs used to accelerate the processing of artificial intelligence and high-performance computing (HPC) workloads in data centers, with an estimated share of 90% in the data center AI GPU chip market and 80% in the overall data center AI chip market. Its share of the data center AI GPU chip market is estimated at 90%, and its share of the overall data center AI chip market is estimated at 80%. The company targets other markets as well, but the data center business is its largest, accounting for 83% of its revenue last quarter.

To be clear, I'm not saying that Nvidia's stock won't plummet or even crash. There's no doubt about it.in the event that The company's GPUs have lost their position as the chip of choice for accelerating the training of AI models and the running of AI applications in data centers.in the event thatIf it can't develop any technology to replace GPUs for these fast-growing uses, then its stock price will plummet. My premise is that it's not easy to compare Nvidia today to Cisco in the late 1990s. The similarities are only superficial.

Key quality differences between Nvidia today and Cisco in the late 1990s

Cisco's chief executive officer, pictured below, is John Chambers, who led the company from 1995 to 2015. Cisco was founded in 1984 by two computer scientists at Stanford University and went public in 1990.

Since its inception in 1993, Nvidia has had only one chief executive officer, Renfan Huang, the founder of MediaTek. The company went public in 1999.

*Based on public records. **LAN = limited area network; WAN = wide area network. *** Generative AI is the technology behind OpenAI's hugely popular ChatGPT chatbot, to be released in late 2022.

Research supports the theory that the stocks of publicly traded companies run by their founders and chief executive officers tend to outperform those run by non-founders over the long term. Huang is a co-founder of Nvidia, and Chambers was not involved in the creation of Cisco.

Wong's educational and work backgrounds prior to founding Nvidia were in electrical engineering and semiconductor design, respectively. In my opinion, these factors give him an edge over CEOs of tech companies with less technical backgrounds.

In the late 1990s, Cisco's moat to stave off competition was not as high as Nvidia's current moat, which is strong not only because of the complexity of its products, but also because of its position as a first-mover in the field of AI chips for data centers, with a large and growing ecosystem. That ecosystem includes "more than 4.7 million developers worldwide who use CUDA and our other software tools to help deploy our technology in target markets," the company said in its annual report filed in February.

The moat difference will become more apparent in my second post on this topic, which will focus on quantitative factors. Suffice it to say that Cisco's profit margins had been declining for several years before its stock price crashed. One of the main reasons for this was the competitive pressure on the pricing side of the equation. Nvidia's margins are currently at record highs.

Let's look at the last category in the chart-growth strategies.20 Cisco in the 1990s gobbled up companies like the classic Pac-Man. From 1993 through July 2000, the company "acquired or announced its intention to acquire 65 companies," it said in its fiscal 2000 annual report.

Nvidia, on the other hand, has grown mostly organically. True, it recently made a huge acquisition, Mellanox, but it was growing at a strong rate even before that deal. In other words, Nvidia didn't need to "buy growth". And before this acquisition, Mellanox was Nvidia's郃 partner, not a competitor, so it didn't buy the company to get rid of a competitor.

Successful implementation of an acquisition-focused growth strategy can be challenging. Acquisitions take time and energy away from senior management to focus on internal innovation. They drain capital that could be used for research and development. In addition, different corporate cultures can be difficult to integrate.

It is well known thatApple Inc.As one of the most successful and innovative companies of the last few decades, it's no surprise that organic growth is a priority.

Should you invest $1,000 in Nvidia now?

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Beth McKenna holds shares of Nvidia.The Motley Fool recommends Advanced Micro Devices, Apple, Cisco Systems, and Nvidia.The Motley Fool recommends International Business Machines.The Motley Fool has a disclosure policy. The Motley Fool has a disclosure policy.

Is Nvidia Stock Like Cisco Stock Before the Dot-Com Crash? This Theory Has Huge Holes was originally published by The Motley Fool.