A New Cisco Kid?
Headlines this week announced that Nvidia has overtaken Microsoft as the largest company in the United States in terms of market capitalization, a new market leader representing investor appetite for anything related to artificial intelligence, aka AI. The AI surge has been sweeping the markets for well over a year now, as a recent blog mentioned, and has carried new tech and some old tech companies to significant heights, among others. One benefit of working in this industry since 1985 is the perspective drawn from experience. Let’s look for some parallels and see if it can inform our investing.
One story pointed out that the last time we had a similar technology surge in the markets was back in 1998 and it lasted until early 2000. During that time Cisco Systems surpassed Microsoft as the market’s biggest company. Cisco was making networking products such as routers and switches, essential components for the emerging internet revolution, and John Chambers was the messianic CEO of this Wall Street darling. Chambers was all over the news, and I even recall a comment that “he should run for President”. Cisco’s meteoric stock price went from roughly $6.50 in 1998 to $15 in 1999 and peaked at $51.61 on March 29, 2000. Raymond James analyst Simon Leopold began covering Cisco a little over 24 years ago, right around when it hit the peak back in 2000.
Today’s story is Nvidia, of course, which makes graphics processing units (GPU’s) for computers, an essential building block for AI-enabled computers. Jensen Huang is the CEO. I read another article about Huang’s “rock star” like fame. Jet setting around the globe discussing the “early stages” of the AI productivity surge, the article even mentioned enthusiastic autograph seekers. I blogged about AI in March, 2023 not realizing that the hype around this development would be so monumental. The stock price of Nvidia (split adjusted) went from about $14.61 per share at the end of 2022 to $48.17 per share to finish out 2023, and closed at $130.78 as of 6/20/24. Yes, you read that correctly – the stock has gone from $48 to $131 in 2024. Is it any wonder that NVDA is today’s darling?
O. Henry was a famous American author known for his short stories, including a story that was the genesis of the character, the Cisco Kid. According to literary sources, O. Henry is known for his use of irony, metaphor, and exaggeration to make his stories fun. He was also known for his surprise endings. In the original movie, “Cisco Kid and the Lady”, the Cisco Kid was played by Cesar Romero. Old timers like me remember him: Cesar Romero played the Joker on the television series “Batman”. The irony is amusing, in my opinion.
Is Nvidia the new Cisco? If it is, will it soon peak and follow Cisco’s pattern? Will Jensen Huang be the new Cisco Kid? Cisco reached its apex in March 2000 and it took just over 19 years to surpass that stock price again. As of today, Cisco sits at $47.38 per share and trades at 12.2 times trailing earnings and pays 3.4% dividends. Nvidia trades at 77.7 times trailing earnings and pays 0.03% dividends. I feel compelled to ask: Will there be a surprise ending?
Ralph McDevittJune 25, 2024
Any opinions are those of Ralph McDevitt and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results. Raymond James & Associates, Inc., member New York Stock Exchange/SIPC
