History doesn’t repeat itself but it often rhymes, goes the saying, and we might just be about to witness how the famous maxim gets applied to the stock market.
At least, that is the opinion of 5-star investor Robbe Delaet. It’s almost exactly 24 years since Cisco Systems became the world’s most valuable company, over taking Microsoft to claim top spot. It was a very brief stay at the summit for the networking giant – one day only, actually – and in hindsight signalled the peak of the dot-com tech bubble. Following which, CSCO shares collapsed by 90% between March 2000 and October 2002 and since those heady days the stock has delivered returns of -37% over the past 24 years.
Fast-forward to the here and now, and it’s no tall order to imagine Nvidia (NASDAQ:NVDA) claiming the title of the world’s most valuable company shortly. The past year’s huge rally has made the chip colossus the world’s 3rd most valuable firm with a market cap of $2.2 trillion. If it does claim the No. 1 spot, the company vacating pole position will interestingly once again be Microsoft.
Just like the hype driving the dot-com tech boom, Nvidia’s huge market gains have been driven by a theme; AI, of course, with the company cornering the market for AI chips and investors piling in by the bucketload.
But now Delaet is issuing a warning on Nvidia stock, believing it could be about to get the same treatment afforded Cisco.
“Investors pumped money into Cisco Systems, which was the best-performing company at that time. However, they forgot one important thing in their investment analysis – assessing the sustainability of this growth rate,” Delaet explained. “They believed the numbers would keep skyrocketing. That’s not possible if customers reduce or even entirely stop ordering after they fully built out their infrastructure need for the coming decade.”
So, it’s a simple argument, essentially. As happened with Cisco, Delaet says that once more, “investors and analysts are cheering the current dominance of Nvidia, without questioning the sustainability of growth rates in the future.”
Lots of questions needs to be addressed, says Delaet. What if clients realize they’ve invested excessively and already possess AI capabilities sufficient for years ahead? What are the potential implications should Nvidia’s dominant position diminish, and rivals such as AMD and Chinese firms gain traction in the market? What are the potential consequences if major clients manage to develop their own AI chip technology?
“Let me tell you what will happen if one of these things occur,” Delaet answers, “Analyst forecasts will not be met. Sales will not grow steadily from $61 billion to $157 billion by FY2027, and net profit margins will definitely not stay at 52%.”
While the present seems rosy, Delaet cautions investors to ready themselves for possible bumps ahead. AI momentum favors Nvidia, but should any flaws become apparent, the stock will have a “very, very tough time as today’s valuation is extrapolating perfection into the future.”
“Just like with Cisco Systems, I fear that the last buyers of this boom will face significant downside and zero returns for decades to come,” Deleat summed up. As such, he rates NVDA stock a Hold (i.e., Neutral). (To watch Deleat’s track record, click here)
That’s one view but it certainly differs to the prevailing one on Wall Street. NVDA claims a Strong Buy consensus rating, based on a mix of 39 Buys vs. just 2 Holds. At $983.84, the average target suggests shares will climb ~12% higher over the coming months. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
