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Nvidia’s huge gains are not another dotcom bubble

Chipmaker’s shares would have to more than triple over the next year to resemble the Cisco bubble

Nvidia is now valued at $1.9 trillion after an astonishing rally of more than 1,800 per cent over the last five years. Photograph: Ritchie Tongo/EPA

Proinsias O'Mahony
Sun Feb 25 2024 - 06:00

Another week, another Nvidia share price rally. Labelled the “most important stock on Earth” by Goldman Sachs before its earnings call, Nvidia faced sky-high expectations and a market on tenterhooks. It has been this year’s market rocket, single-handedly fuelling a quarter of the S&P 500′s rally.

Thus, Nvidia’s stunning results – it blew past earnings, revenue and guidance expectations, with chief executive Jensen Huang saying AI (artificial intelligence) had hit a “tipping point” – were greeted euphorically.

“Nvidia saves the world”, headlined CNBC, with Wedbush analyst Dan Ives saying this was “probably the most important earnings that we’ve seen from any company in the market for the last five years”. Nvidia’s earnings were “insane”, said Saxo Bank’s Peter Garnry, adding: “I have never seen anything like this in my career.”

To some, such talk might sound hyperbolic and, well, bubbly. Now valued at $1.9 trillion (€1.75 trillion) after an astonishing rally of more than 1,800 per cent over the last five years, many sceptics compare Nvidia’s rise to that of dotcom-era Cisco. Cisco was valued at almost $560 billion in 2000, making it the most valuable company in the US. Expectations were just too high; today, Cisco is valued at just $196 billion.

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Dotcom comparisons look flawed, however. Trading on 33 times expected earnings, Nvidia shares would have to more than triple over the next year to resemble the Cisco bubble, says Fundstrat analyst Matt Cerminaro. Yes, Nvidia’s shares have skyrocketed, but that’s because the company’s profits have risen even faster.

Proinsias O'Mahony

Proinsias O'Mahony

Proinsias O’Mahony, a contributor to The Irish Times, writes the weekly Stocktake column

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