Recent volatility in Nvidia Corp.'s stock is bringing back memories from the start of this century, when companies like Cisco Systems Inc. and Intel Corp. saw their shares crash and never fully recover after the dot-com bubble burst. Investors want to know if the chip maker powering the artificial-intelligence revolution is destined to share the same fate.
The undisputed leader of the AI frenzy closed at an all-time high less than a week ago and briefly surpassed Microsoft Corp. $(MSFT)$ and Apple Inc. $(AAPL)$ to become the world's most valuable public company before swiftly giving that title back on Thursday. Nvidia shares $(NVDA)$ have dropped over 10% in the past three trading days, wiping out nearly $400 billion in market capitalization and sparking concerns that the astronomical surge in the company's share price could run out of steam.
The swift recent downturn in Nvidia's stock has spawned inevitable comparisons to the companies affected by the dot-com bubble that burst 24 years ago, with some market analysts drawing parallels between Nvidia's stock performance and that of Cisco $(CSCO)$ and Intel $(INTC)$ in early 2000.
Nvidia's stock recently traded around 100% above its 200-day moving average. Since 1990, the widest spread that any U.S. firm has ever traded above its 200-day moving average while being the largest company was 80%, achieved by Cisco in March 2000 (see chart below), according to Jonathan Krinsky, chief market technician at BTIG.
"In other words, Nvidia is in a league of its own," Krinsky said in a Monday client note.
The 200-day moving average is considered a key indicator by traders and technical market analysts for determining overall long-term market trends. When a stock price remains above its 200 DMA on the daily time frame, it is generally considered to be in an overall uptrend.
It's also notable that Cisco briefly surpassed Microsoft to become the largest U.S. company by market cap in March 2000, and that marked the all-time high of Cisco's stock price NDX to date.
Cisco's stock surged more than 1,000 times in the 10 years after it went public in 1990, striking a record high of $80 on March 2000 before tumbling after the collapse of the dot-com bubble to a low of $8.60 in October 2002.
More than 20 years later, at a share price of $47.3 as of Monday afternoon, Cisco's stock has yet to reach its 2000 peak again, according to FactSet data.
"While we fully recognize the fundamentals are much different this time around, in the last five years, Nvidia is up 4,280% compared with Cisco's 4,460% gain in the five years leading up to its peak [in March 2000]," Krinsky said.
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Nvidia vs. Intel
There's also another example of a large-cap technology firm that made it through the popping of the dot-com bubble but never saw its share price revisit its peak from 2000.
Intel, whose stock traded at $30.70 per share as of Monday afternoon, is still one of the world's largest semiconductor manufacturers, but its stock has yet to regain the high of $75.89 per share it reached in August 2000, according to FactSet data.
See: Intel's bad year worsens, with analyst decrying company as 'profoundly broken'
Nicholas Colas, co-founder of DataTrek Research, compared present-day Nvidia with Intel in the 1990s, and he found that Nvidia's business model is "demonstrably superior" to Intel's on "every metric important to equity investors."
Nvidia's revenues in the fiscal year that ended in January 2024 are "the same" as Intel's inflation-adjusted sales at the end of the dot-com bubble in 2000, but Wall Street analysts expect the AI darling to post sales of $120 billion this year, Colas wrote in a Monday note.
"That's basically double from 2023, unlike Intel's sales decline in 2001. Nvidia's momentum continues right where Intel's faded at the end of the dot-com bubble," he said.
Nvidia's business today is also "substantially better" than Intel's at its dot-com-bubble peak, Colas said. For example, Intel's net profit margin in 2000 was 31.2%, while Nvidia's net margin in 2023 was 48.9%. Intel's return on equity in 2000 was 28.2%, compared with Nvidia's 69.2% last year.
"Nvidia's current margins and return on equity are 57%-145% better than Intel at its 2000 peak, and it accomplishes this with one third the number of employees," Colas wrote.
Meanwhile, Nvidia spent more on research and development than Intel in its late 1990s heyday, with Nvidia's R&D-to-sales ratio standing at 14.2% in 2023, compared with Intel's 11.6% in 2000, according to data compiled by DataTrek Research.
What's more, Nvidia's current market valuation of over $3 trillion is six times Intel's $510 billion in 2000 on an inflation-adjusted basis. Nvidia also exceeds Microsoft's inflation-adjusted market cap at the peak of the dot-com bubble by almost 300%, according to Colas.
"The bottom line here is that there are many good reasons why Nvidia has climbed to the uppermost echelons of global equity valuations, and its continued presence there will be a function of the market's ongoing belief in the fundamentals," Colas said. He also added that given the volatility in the semiconductor industry, his team would "not be surprised" to see the stock exhibit "some volatility" in the coming weeks.
"[Nvidia] is not Intel in 1999, but something much better positioned to hold investor confidence," he added.
Shares of Nvidia tumbled 6.7% on Monday to enter correction territory, while Cisco’s stock ended flat and Intel’s was down 1.7%, according to FactSet data.
U.S. stocks finished mixed on Monday as technology stocks continued their pullback. The Nasdaq Composite COMP slumped 1.1%, while the S&P 500 SPX was off 0.3% and the Dow Jones Industrial Average DJIA advanced 0.7%.
