Nvidia Stock vs Cisco | The 2000 Dot-Com Bubble Crash.

well folks is NVIDIA in a complete

bubble this video is inspired by this

chart right here Nvidia since May of

2016 overlaid on top of Cisco stock

since the IPO of America online who

remembers that one you got mail anyway

from February 92 which was basically

right after I was born uh Jan 92 here

anyway so they overlaid uh Nvidia since

2016 over here is the green line over

Cisco since

'92 and uh there's this

Eerie similar pattern here that suggests

maybe there's a giant collapse coming uh

for NVIDIA uh now do keep in mind it

looks like this um this over here on the

left is increasing at uh levels of uh

basically um 2,000

so um having a little hard time

understanding exactly how to line this

up but if I take this level here and I

compare that chart to where Cisco was

maybe it means we have another 10% to go

1,300 or so based on this chart but it

basically suggests we're getting

relatively close to the top now is that

fair is it fair to compare Cisco to

Nvidia today

so what I decided to do was go into the

2000 earnings report for Cisco and make

some

comparisons this comes though at the

same time as the market year put this

piece together which we made some notes

on over at ec.com but basically the

charts to pay attention to are ones like

these right here Us valuations in the

blue line specifically Tech media and

Telecom PE ratios relative to everything

without Tech media and Telecom in other

words PE ratios are being driven by Tech

media and Telecom this makes sense and

it was unfortunately the same thing that

you saw in the 2000 bubble over here and

then a stimulus bubble over here which

is not great it's also worth noting that

Microsoft Nvidia alphabet Amazon and

apple make up 27%

uh of the S&P 500 right now which is

pretty substantial uh that means of the

S&P 500

25% of the total income of the entire

index of 500

stocks is made up by just seven

companies here are those seven companies

largest contributors to fourth quarter

net income Apple Microsoft Exon alphabet

Chase Chevron Bank of America it's a

percentage of the

uh total profit here when you add these

up you get 25% of earnings in S&P 500

companies all together all 500 25% being

led by just seven of them obviously uh

Apple Microsoft alphabet being some of

the big Tech portions of that although

Tech earnings continue to get forecast

as higher so it does make folks Wonder

well I mean maybe it's not a bubble

because that's just where all the

earnings are today and so exactly that

thesis is why I decided you know

what excuse me let's hop on over

to the Cisco earning statement from 2000

which is kind of remarkable so let's go

through this is probably one of the uh

older annual reports I've gone through

this year I do like looking at

historical data I love going through

stuff from the 80s but inter but usually

I'm looking at like fed minutes and that

this is interesting though all right so

here's some things to note the first

thing that I wanted to do was I wanted

to uh look at how many times sales this

company is selling for in

1998

1999 and

2000 uh and in these various years it

was selling for 16.9 times sales at Peak

8.4 times sales the year before Peak and

five times sales to 2 years before its

peak it had gross margins in a Range

that did move up substantially from 42%

to 53% to 64% Nvidia is sitting around

77% gross margins which means they make

a lot of money right uh and then on a

net income basis we had uh margins move

up to a high of about

26.5% over at Cisco now what's

interesting about that is if you jump on

over to nvidia's investor relations and

you get their latest annual report

you'll be able to compare these numbers

directly now I already did that and I

just want you to show at least see one

of them in uh one of their latest annual

reports so that you can compare it

yourself and see the comparison but when

you go to the annual report you're going

to notice some differences if you know

what to look for and those are the

things we want to compare and understand

as well as what's similar because then

we'll be able to get some good

information in terms of okay all right

is this Cisco 2.0 uh anyway so we go

over here to the revenue statement for

calendar

2023 which is basically January 28th my

birthday 2023 through January 24 uh 8th

2024 uh you'll find here that their net

margin is closer to about percent so in

other words Nvidia has about twice the

net income percentage as Cisco did did

at Peak for Cisco so Nvidia is

definitely bringing more money to the

bottom line one of the easiest ways to

see that is in the earnings per share

measure look right here earnings per

share at Cisco we're sitting at just 36

Cents 29 cents or 20 cents on a gap

basis which means the company was

trading for 221 times earnings at Peak

well look at the earnings per share at

Nvidia earnings per share at Nvidia

exploded to

$112 per share in

2024 which is very very high they are

actually printing

substantial cash 29 billion dollar in

net income okay so what other

comparisons can we make how can we make

some direct comparisons between the

companies well I went ahead and wrote

those all out right here let's go

through them to make it nice and simple

for you so Nvidia calendar 2023 you have

a company that has about $6.9 billion of

Revenue uh and at $481 per share at the

end of the year it was about a $1.18

trillion company it was trading for 19

times sales that's actually more than

the sales multiple you had at the Cisco

peak of uh sorry not that it's this

number right here 16.9 times sales so

you're definitely trading for more on a

sales basis than Cisco ever has but the

earnings are so strong that Cisco at

Peak was trading for somewhere around

221 to 150 times earnings depending on

if you use the Gap EPS or the non-gaap

the adjusted EPS well on an adjusted EPS

basis Nvidia is trading for just 27

times substantially lower valuation for

the year

2024 Nvidia is expected to sell for a

record

23.8 time sales that's huge that's

almost 50% more than Cisco ever sold for

but on a per share earnings valuation

they're expected to only be trading for

43 times 2024 earnings on an adjusted

basis that's not bad so what I Tred to

do then is is align this a little bit

differently what if I divide the

company's growth rates that are forecast

over the next four years or in the case

of Cisco what growth they actually had

over the next four years to try to get

an A PEG ratio and so what I got with

nvidia's forecast growth of just 10% on

average for earnings per share growth

over the next four years I actually get

a PEG ratio of about four this includes

one negative year and that's simple 43

divided by 10 is about 4.3 right from

2000 on Cisco's EPS for the next 4 years

grew at about

11% and if you use their adjusted 150 PE

ratio that means their PEG ratio was

about

15 so if we use Peg ratios Nvidia is

roughly four times cheaper than Cisco

was at PE

bottom line Nvidia makes a whole lot

more money than Cisco did On a par share

basis in 2000 so yes does it feel bubbly

absolutely now obviously we are

comparing what happened with Cisco to

what hopefully happens with Nvidia which

is forecast

growth what happens if nvidia's growth

collapses well then The Cisco story

could play out the Cisco story that we

saw with that chart coming way back down

and Cisco stock collapsing from a peak

of $79 all the way to $10 worth noting

what that kind of decline is that's an

89% Decline and then it sort of grew

from there what happened well growth

substantially

slowed despite people's expectations

that growth would go on forever and and

the question is could that happen to

Nvidia stock look at the actual stock

movement you Euphoria bubbled up to

$79 so from then if you invested at Peak

you would still be down 40% on your

investment but if you just waited a

mere 11 months maybe 12 months you could

have bought the stock for somewhere

around $13 to $10 let's you bought it at

$13 a share today you'd still be up 247

per. so as usual timing is everything

but obviously there's a valuation

similarity here in that Nvidia on a Pur

sales basis feels grossly overvalued but

then again today we tend to find a more

reliable indicator is a PEG ratio how

many times earnings growth are we paying

for the company and the closer you can

get to a one peg

the better deal it seems to be in fact

if you look at Cisco when it hit its low

in October 2022 at

$10.56 after the boom you were trading

with an adjusted EPS of

38 with future growth expected to be

about

28% which meant you were basically at a

onepeg so you really want to buy these

stocks when they're closer to a onepeg

definitely not when they're at a 15 Peg

and honestly a four Peg for a chip like

a chip

designer it's getting a little Rich most

manufacturers today trade for around 1.6

to two Peg software companies maybe you

can call Nvidia that are going to trade

for somewhere between a 2.6 to a three

peg and then we do start getting a

little bit rich and of course that's

where the Nvidia story can collapse if

quite frankly Amazon's heads up to the

world which is hey we're going to we're

going to sit out the h100s and we're

going to wait for the Blackwell chips

starts reverberating through other

companies and everybody starts saying

yeah we'll wait and growth collapses or

goes negative for

NVIDIA then nvidia's stock valuation

will very quickly almost overnight

mirror that of cisos consider this for a

moment if invidious stock is only

expected to

grow by a total of 10% in earnings over

the next four years so let's call it 2%

compounded so I'm going to go 1.02 *

1.02 * 1.02 * 1.02 puts us about 8.4 so

maybe call it

2.3% uh per year yeah that gets a

closure to 10% 2.3 2.4% per year over

the next few years that could be 50%

next year negative 10% earnings growth

the next the year thereafter right just

all averages out well in that case you

would take a PE ratio of 43 and you

would divide it by 2.4 for the average

growth rate that would Skyrocket

nvidia's p uh PEG ratio to

18 overnight and all it with take is not

a bad next year but the next year

thereafter having some really big

negative earnings years which could

happen if companies decide to delay

orders and the valuations of h100s

plummet because remember right now h100s

and Blackwells and all of the new chips

that Nvidia announces they're all

selling for a substantial premium I

think this is the big red flag that

people forget about when it comes to

Nvidia is in Nvidia is not always going

to sell a

$7,500 chip which is roughly what these

stock should or the um h100 should be

selling for let's write that down so you

can see it visually Nvidia is not always

going to be able to say oh this is a

$7500 chip but we're going to sell it to

you for

$35,000 remember Amazon for AWS already

delayed the h100s like ah we're good

right now we're good right now

Elon Musk just told us hey we're not

compute constrained anymore why don't

you send those chips that are supposed

to go to Tesla I already made a video on

that if you want that update just meet

Kevin Tesla look it up I did I think the

title is meet Kevin Tesla call options

look that up uh Elon Tesla you know go

ahead and send those chips to

xai what that is doing the sort of

redistribution of h100 orders is it's

going to reduce demand for people paying

a premium for those h100

and that ship price will move down to

what it should be its MSRP of frankly

somewhere around

$7,500 which might cost Nvidia $3,500 to

manufacture so they could still get

their margin they're just not getting

that ridiculous level of margin that

they're used to getting now that is

going to continue happening it's now AWS

and now it's Elon who's next to say ah

I've got enough h100s now I know it

takes time to set up the install

capacity but the reality is the more

companies you get that start saying ah

we're we're good on compute you know

even snowflakes like uh does anybody uh

want to be acquired because uh we need

more customers for AI and we can't find

any it's just in the news

today but anyway what happens is those

margins get squeezed then EPS growth

will collapse at Nvidia then nvidia's

PEG ratio will rapidly increase to to

look like cisos and then yes the stock

should collapse now I don't think that's

imminent but I do think we're starting

to get some red flags AWS and Elon are

the start of those red flags that's my

take not saying it can't go euphoric

rally over the next 2 three months but

we walk into an unemployment recession

and then companies start cutting these

h100 orders or the Blackwell

orders those margins will collapse

earnings growth will collapse Nvidia

stock will just follow the same path

that Cisco stock followed and yes the

dot bubble could actually repeat

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