Finance Marketwatch

History does not repeat itself, but it often rhymes, says the proverb, and we could be witnessing the famous maxim being applied to the stock market.






At least that's the opinion of 5-star investor Robbe Delaet. It is almost exactly 24 years since Cisco Systems became the most valuable company in the world, knocking Microsoft off the top spot. It was a very short stay at the top for the networking giant – just one day in fact – and in retrospect signalled the peak of the dot-com tech bubble. As a result, CSCO shares plummeted 90% between March 2000 and October 2002, and since those heady days, the stock has returned -37% over the past 24 years.

Today, it’s not hard to imagine that Nvidia (NASDAQ:NVDA) will soon claim the title of the world’s most valuable company. The enormous rally of the past year has made the chip colossus the third most valuable company in the world with a market capitalization of 2.2 trillion dollars. Interestingly, if the chip giant does indeed take first place, the company that will vacate pole position will once again be Microsoft.

Just like the hype that drove the dot-com tech boom, Nvidia’s huge market gains have been driven by one theme: AI, of course, with the company cornering the market for AI crisps and investors piling in by the bucketload.

But now Delaet is warning against Nvidia stock because he believes the company could get the same treatment as Cisco.

“Investors pumped money into Cisco Systems, which was the best performing company at the time. However, they forgot one important point in their investment analysis – evaluating the sustainability of this growth rate,” Delaet explained. “They thought the numbers would continue to skyrocket. That’s not possible if customers reduce or even stop ordering after they have fully covered their infrastructure needs for the next decade.”

So basically, it’s a simple argument. As in the case of Cisco, Delaet says that once again “investors and analysts are cheering Nvidia's current dominance without questioning the sustainability of growth rates in the future.”

Many questions need to be answered, says Delaet. What if customers realize that they have invested too much and already have sufficient AI capabilities for the coming years? What are the potential consequences if Nvidia’s dominant position wanes and competitors such as AMD and Chinese companies gain a foothold in the market? What are the potential consequences if major customers succeed in developing their own AI chip technology?

“Let me tell you what will happen if any of these things happen,” Delaet replies, “The analysts' 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 appears rosy, Delaet warns investors to prepare for possible setbacks. AI momentum favors Nvidia, but should any weaknesses become apparent, the stock will have a “very, very hard time as today’s valuation extrapolates perfection into the future.”

“Just like Cisco Systems, I fear that the last buyers of this boom will face significant losses and zero returns for decades to come,” summarizes Deleat. He therefore rates NVDA shares as a "hold" (i.e. neutral). (To see Deleat’s track record, click here)

That’s an opinion, but it's certainly different from the prevailing view on Wall Street. NVDA is rated a "Strong Buy" by consensus, based on a mix of 39 buys and only 2 holds. The average price target of $983.84 suggests the the stock will rise ~12% in the coming months.