Two Bubbles in One Currency
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By Monish Chhabra ǀ June 19, 2023
CISCO was to ‘internet’ in the late 1990s, as NVIDIA is to ‘high-performance computing’ now. They are believed to control the entry points into their respective digital worlds.
Yet, one company that supports the building of the real world has stayed same through both the periods – BHP.
The world’s largest miner was supplying the world with coal, copper and iron then, and continues to do it now.
Still, cycles exist. And the players in these two worlds – real and digital – exert their dominance at different times.
The graph below compares the last big run in digital stocks in the 1990s, to the one now that we have witnessed over the last decade.
The blue graph is the relative performance of ‘CISCO vs BHP’ while the orange graph shows the same for ‘NVIDIA vs BHP’. We have super-imposed the graphs by putting the former’s time axis at the bottom, and the latter on the top.
CISCO’s narrative in the 90s, as well as its stock price rise, was bigger than that of NVIDIA now.
Those expectations regarding the promise of ‘internet’ came true. And CISCO delivered on its business, as an important maker of devices required to connect to the net.
Yet, its stock suffered a debilitating fall - that it still hasn’t recovered from, more than two decades later.
The reason – too much anticipated growth that bid the stock price too high. And then came alternative products from other players, that took away market share.
That’s where we are today for NVIDIA.
The importance of high-performance computing or artificial intelligence can’t be undermined. And the company may well execute on its chips as expected.
However, the future growth built into its price today is astronomical. And decades don’t pass without alternative technologies coming out from other players. Especially when the prize is big.
2022 was the first test of this extreme swing in price. It was recovered from, with a new set of narratives coming out in 2023.
NVIDIA is now back to those extreme statistical levels - on its own price distribution, as well as, relative to real world material suppliers like BHP.
The next swoon would be harder to resuscitate.
This write-up is for informational purpose only. It may contain inputs from other sources, but represents only the author’s views and opinions. It is not an offer or solicitation for any service or product. It should not be relied upon, used or construed as recommendation or advice. This report has been prepared in good faith. No representation is made as to the accuracy of the information it contains, nor any commitment to update it.