Despite surging to a new all-time high this morning and starting the day as the world’s most valuable company, Nvidia (NASDAQ:NVDA) has begun to lose steam this afternoon. At the time of this writing, NVDA stock is down approximately 3%, with investors appearing to be taking some profits after an incredible run in the technology sector.
This move in NVDA stock is partly responsible for the downside investors are seeing in the Nasdaq Composite today. Down more than 0.8% this afternoon, it does appear that valuation is starting to matter for investors considering whether to put fresh capital to work in the tech sector.
Among the catalysts driving bearish momentum today is commentary from Cisco’s (NASDAQ:CSCO) former CEO, who implied that some similarities may exist between Nvidia now and Cisco during the height of the dot-com bubble. While he did imply that Nvidia may be quite different due to its size and the potential size of the artificial intelligence (AI) market, this is certainly something to explore.
Let’s dive into what to make of this take — and whether Nvidia remains a buy.
NVDA Stock Dips as Bubble Worries Come to the Surface
Given how far and fast Nvidia has surged this year, some concerns around NVDA stock trading in bubble territory are certainly warranted. The stock is now trading near 80 times earnings and, while its forward multiple is a lot lower, the question is whether future growth expectations will materialize.
Of course, some amount of demand has likely been pulled forward, as companies and institutions ramp up ordering to meet expected demand for their AI applications. However, as with every megatrend in the market, the future is uncertain. And right now, investors are clearly questioning whether Nvidia’s growth rate can continue at this pace and for how long.
I don’t think Nvidia will see the kind of growth slowdown Cisco saw during the dot-com bubble. And, over the very long term, investors who continued to dollar cost average into CSCO stock did do okay (even though it took decades for shares to stage an eventual recovery).
All told, the AI trend appears to be a real long-term tailwind for the markets. I tend to agree with the former Cisco CEO that these two companies are likely more different to each other at their respective peaks than they are similar.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
