New Street Research Believes Nvidia’s Situation Differs from Cisco Systems, Easing Bubble Concerns

New Street Research recently addressed concerns about Nvidia’s stock potentially suffering a similar fate as Cisco Systems during the dot-com bubble. Analyst Pierre Ferragu reiterated a Buy rating on Nvidia shares and expressed confidence that the circumstances surrounding Nvidia differ significantly from Cisco’s internet bubble selloff.

Ferragu highlighted the differences in valuations between the two companies. During the dot-com boom, Cisco’s revenue rose by 15 times, with its share price reaching 121 times the expected earnings for the next 12 months and 22 times forward revenue. In contrast, Nvidia’s revenue has grown about seven times, with a valuation of 27 times forward earnings and 14 times sales.

While acknowledging the possibility of a 20% stock decline if revenue disappoints in 2025, Ferragu emphasized that current valuations already account for a significant risk of a pullback. He also noted that if concerns about 2025 recede, Nvidia’s stock has significant appreciation potential.

Nvidia’s dominance in the AI chip market was highlighted, with the article noting that any comparison to Cisco underestimates Nvidia’s strong technology leadership in AI. The company offers a more advanced multilayered infrastructure with hardware and software components, making it a preferred choice for start-ups and corporations. Nvidia’s robust software programming ecosystem, CUDA, has facilitated the rapid development of AI applications.

The article also mentioned that the shift toward AI infrastructure is still in its early stages, with only 10% of cloud servers currently enabled with chips suited for AI projects. This indicates that Nvidia has ample room for growth and the opportunity to enhance its chips’ performance and AI software capabilities.

In conclusion, New Street Research believes that Nvidia’s situation differs from Cisco Systems, alleviating concerns of a potential market bubble. The company’s strong position in the AI market, coupled with its advanced technology and growth potential, makes it an attractive investment opportunity.