I just read from Barron’s that Nvidia hit $4 trillion in market value last week – having overtaken Apple as the most valuable company today. Pretty crazy…
A new milestone. A record rally.
Today, Nvidia is one of the fastest growing businesses, having jumped ~49% over the last three months.
The poster child of the internet bubble
In the 1990s, Cisco Systems was the most important company. It was the leader in networking equipment, switches and routers. It sold hardware that drove the internet revolution.
Cisco was the poster child of the internet bubble.
After it listed in February 1990, shares of Cisco surged ~200,000%. At its peak, Cisco traded at ~200x PE ratio, making it one of the most valuable companies then. It briefly surpassed Microsoft in terms of market value.
Now, Cisco crashed not because it was a lousy company. Far from it.
Back then, Cisco had massive growth during that period when everyone went ballistics about internet usage. More and more people needed infrastructure and equipment to support the internet boom.
However, shares of Cisco collapsed after that because of heavy speculation. Revenue growth started slowing down.
In fact, just before the crash, Cisco’s revenue growth slowed down to 40-50%, down from 100-300% it enjoyed in the earlier tech boom years.
Today, Nvidia is following the same movie play, as the AI-chip giant made history to hit a $4 trillion market cap.
Nvidia is the backbone of AI.
It sells its super hot GPUs to power the AI revolution.
Global tech companies are hungry over Nvidia’s newest chips to improve AI reasoning models, AI agents that complete tasks autonomously.
Since its IPO in 1999, shares of Nvidia have grown over 400,000%.
Both Cisco and Nvidia are key drivers of the internet revolution. Both companies trade at huge valuations. By the way, today Nvidia’s market cap is now greater than the market of each of the following S&P 500 sectors including consumers, energy, real estate and so on.
You’ll disagree with why “things should be different”
Nvidia trades at only 54x PE ratio, versus Cisco’s 200x PE. Surely there’s still a long way to go, right?
Well, I’ve invested over the last 14 years – been through the best of times, been through the worst of times in BOTH the stock and bond markets. If there’s one lesson I’ve learnt about market cycles: it’s easy to get lost when the bull market surges like “there’s no tomorrow”. But the reality is when the bear market bites back in the most unexpected ways.
I’m a dividend investor. I invest for retirement. In order to enjoy your compounding passive income is first to protect our capital.
Cisco shares plummeted more than 80%. It took over ten years to reach close to its peak.
At one point, even Microsoft shares was stuck in the bargain bin for the next 15 years after the dotcom crash
Look, I’m all for new tech to impact our lives for the better. That’s great.
BUT, when it comes to investing, I can’t tell exactly where Nvidia shares will trade.
And here’s the other thing, it’s probably more important to focus on picking stocks at the right price than blindly following the herd in chasing higher stock prices.
As such, 1) I highly recommend having a set of “Right Price Limit” for your stock positions to prevent overpaying – no matter how strong a company’s fundamentals is.
Next, is to 2) make sure you diversify your investment portfolio, especially to other non-tech sectors.
There are many great businesses with huge upside potential. But I’ve no idea when they could fall, how quickly and when.
So… don’t get caught buying great assets at the wrong price, especially in this crazy, bull market.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
Well that is how some people got rich in the internet revolution back in the days as momentum traders. That goes to the same as the current AI revolution.
I am long on both Nvidia and Palantir for at least 2 years, great return for me already as a momentum retails.
Hey Momentum Trader,
Good to hear from you! I don’t disagree. There are investors who made good money in a bull run. But I prefer to be cautious when things start to get heated up.
What’s your view on Nvidia and Palantir?
Cheers,
Willie