NVIDIA had a boom like Cisco in 2000, but Deutsche Bank pointed out that performance determines the future of stock prices

Deutsche Bank stated that the future of NVDA (NVDA) stock prices will be a major focus on the profitability of AI chip makers after returning part of the explosive surge seen in the past few months.

NVIDIA's (NVDA) stock price fell 25% from its June peak and is now under greater scrutiny after losing more than $800 billion in market capitalization, Deutsche Bank said on Wednesday. NVDA is the standard-bearer of AI investment enthusiasm, and network equipment manufacturer Cisco (CSCO) was the “child” of the 2000 high-tech bubble.

Jim Reed, head of global economics and thematic research at Deutsche Bank, said, “The rise in the two stocks is similar, but at the end of the day, what matters to NVIDIA (including market enthusiasm for high technology and AI) is whether sustainable high profits can be achieved.”

Here's the chart:

Nvidia (NVDA) revenue far exceeds that of Cisco (CSCO) at the peak of the tech bubble, and Nvidia's 12-month net profit is ~45 billion dollars, which exceeds Cisco's 3 billion dollars, according to DB. Also, Mr. Reed mentioned that Cisco (CSCO) is traded at 200 times or more of profit.

“NVIDIA's final PE ratio has declined from nearly 80 times its peak to around 60 times in recent weeks, but if the consensus forecast of net profit of around 65 billion dollars for the next 4 quarters can be achieved, the final PE ratio will be around 35 times. NVIDIA's net profit in 2027 is expected to be close to 100 billion dollars.

As a negative aspect of NVDA (NVDA), Mr. Reed says, there is no track record of sustainability in dramatic profit growth. “It wasn't until the beginning of 2023 that it fell below 4.5 billion dollars, which is lower than Cisco in 2000 after adjusting for inflation.

“Whether the (NVDA) and (CSCO) charts) will show a big divergence in the future will probably all depend on performance and whether the recent impressive beat continues.

NVIDIA's next financial results report is scheduled for 8/28. NVIDIA (NVDA) shares surged +11% on Wednesday as Morgan Stanley added the semiconductor maker to its top pick list after recent sales.