Benzinga - by Piero Cingari, Benzinga Staff Writer.
Wall Street analyst Ed Yardeni is drawing parallels between Nvidia Corp.‘s (NASDAQ:NVDA) current stock market rally and Cisco Systems Inc.‘s (NASDAQ:CSCO) meteoric ascent during the 1990s tech bubble.
Nvidia could potentially soar even higher before facing any risk of a downturn—if such a risk materializes at all, Yardeni said.
What Happened: Nvidia’s stock value continues to surge as the market grapples with a critical question: Are we on the verge of another bubble, or is this the ascent of a sustainable technological boom?
Since the introduction of ChatGPT by OpenAI on Nov. 30, 2022, Nvidia — the leading manufacturer of AI chips — has seen its stock soar by an astounding 265%.
This surge has outpaced the S&P 500 Semiconductor Index’s 108% gain over the same period.
The growth trajectory, as Yardeni showed, shows a sharp upward trend. It’s reminiscent of Cisco’s eightfold increase before its eventual crash in the early 2000s.
“Is Nvidia today's Cisco? It's possible. If so, then it has a lot more upside before it crashes—if it crashes,” Yardeni wrote.
Chart: Nvidia 2022-2024 vs. Cisco 1998-2000
According to Yardeni, Federal Reserve Chair Jerome Powell, having closely examined the tenure of his predecessors, including Paul Volcker, aims to quell inflation potentially without inducing a recession.
This delicate balance has led to a market expectation of interest rate cuts, as the fight against inflation shows signs of victory.
Read Also: Goldman Sachs Debunks AI Bubble Fears: Why It’s Not The Next Dot-Com Disaster
Why It Matters: The memory of former Fed Chair Alan Greenspan‘s 1996 warning of “irrational exuberance” is still fresh. And the possibility of asset bubbles forming is a concern that cannot be ignored.
The staggering $6 trillion parked in money market mutual funds represents a vast pool of liquidity that could flood into stocks and bonds. This could potentially ignite a melt-up in the markets if interest rates are slashed, Yardeni says.
If Powell and his team prematurely bask in the triumph of curbing price inflation without a recession, all while cutting interest rates, they may inadvertently stoke asset inflation. Such a scenario could inflate a bubble that, upon bursting, would likely precipitate a recession.
Nvidia’s fate in the coming months or years may well signal whether we are on the cusp of a groundbreaking epoch driven by growing productivity thanks to the AI revolution, or merely the reflection of a historical bubble.
“The Fed's next big mistake could be inflating a speculative stock market bubble. Powell must know that. If so, then he should reiterate that he is in no rush to lower interest rates,” Yardeni stated.
Read Now: Microsoft Races To The Top, Hits $3-Trillion Valuation, Challenges Apple’s Throne
Image: Shutterstock
Latest Ratings for CSCO
| Mar 2022 | Wells Fargo | Downgrades | Overweight | Equal-Weight |
| Feb 2022 | Cowen & Co. | Maintains | Outperform | |
| Feb 2022 | Raymond James | Maintains | Outperform |
View the Latest Analyst Ratings
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