Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Cisco Then vs. Nvidia Now

Companies / Nvidia Apr 18, 2024 - 10:45 PM GMT

By: Submissions

Companies

Owen Williams writes: We have been watching the S&P 500 and Nasdaq-100 melt-up since the minor correction ending in October 2023.  While the narrative around a Fed “pivot” on rates sparked the turnaround, it is obvious since we started 2024 that the indexes are rising purely on momentum in a handful of stocks which are leading development of artificial intelligence (AI). Notably this is Nvidia, a semiconductor foundry, along with Meta and Microsoft.



Recent inflation data shows CPI and PPI inflation is getting sticky, with January, February, and March readings ticking up. The Fed rate cut narrative is fading (markets are down to pricing in only 3 or 4 cuts this year), yet the big cap indexes are not reflecting the deterioration of the interest rate cut narrative, nor the likelihood that “higher for longer” rates will slow economic growth. The reason is that the indexes have been hijacked by the mega cap stocks (25% of the S&P 500, but more important to the index due the implied volatility of these names). So goes Nvidia, so goes the other AI players, and so goes the S&P 500. Note that another mega cap, Apple, has failed to make new highs recently, as the company is not seen as an AI leader. This confirms that it is indeed AI that matters to markets today.

With Nvidia announcing another record quarter this past week, the stock jumped another +20%.  In fact, any stock that beats earnings forecast and is active in AI is exploding. Just look at Meta earlier this month.  As we started our career during the Tech Bubble, we recall how any company active in the development of the Internet say their stock prices go parabolic.  Fast forward to today, and we are witnessing the same thing with AI.  We are not making a judgment on the importance of AI. Maybe this technology is a game changer. But like with the internet revolution, markets are pulling forward a decade of earnings into today’s price (and likely being over-optimistic in Nvidia’s future chip sales).

One of the poster children of the Internet Tech Bubble was Cisco.  We carefully plotted the last two years of Cisco’s stock price against the leader of the AI Bubble, Nvidia. The similarities are astounding so we are sharing the chart below.

 

The overlay shows that the path of the two stocks over the past years has been similar. First, we see a run-up with only a several month consolidation period (no pull-back in price). Second, the magnitude of the rallies is similar, with Nvidia up +636% and Cisco up +596%. Finally, we see almost vertical price gains in the last stage for Cisco. While we can’t say Nvidia is over, we are again getting the vertical price gains.

We are confident that the Nvidia is a bubble, and we are equally confident that no one can know when it’s finally over. But a couple of interesting milestones we hit recently by Nvidia’s stock.  First, Nvidia touched the $2.0 trillion market cap level, perhaps an objective for the algos. Second, the stock passed its pre-split highs around $840, as shown below, but stalled out below the symbolic $1000 price level.

Our only interest as investors in Nvidia is that the stock drives market sentiment currently. We don’t recommend buying, selling, or shorting Nvidia.  For investors in the S&P 500 and Nasdaq, you are particularly exposed. With put options still cheap on the indexes, this is what we do recommend.  As for our strategy portfolios, we remained focused on value dividend stocks, which should be relatively immune whenever the AI bubble bursts. Good luck to all!

By Owen WIlliams

Owen Williams is professor of finance at the EM Lyon Business School. He holds a PhD in finance from the Grenoble Ecole de Management and is a CFA charterholder. His research interests include asset pricing, currency markets, and portfolio theory.

© 2024 Copyright Owen WIlliams - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in