A $320 billion overnight recovery! Deutsche Bank speaks out: Whether NVIDIA will experience a "2000 Cisco-style" crash depends on its performance
NVIDIA's stock price has been fluctuating in the past few months, with a significant increase and decrease in market value. Deutsche Bank pointed out that NVIDIA's stock price will depend on its profitability, not just the impact of the artificial intelligence investment boom. Compared to Cisco, NVIDIA has higher earnings but a lower price-earnings ratio. Deutsche Bank believes that if NVIDIA can meet future profit expectations, its price-earnings ratio will further decrease. Overall, NVIDIA's stock price has experienced sharp ups and downs, and its future trend remains uncertain
On Wednesday, NVIDIA (NVDA.US) saw a nearly 13% surge in its stock price, increasing its market value by $329 billion, breaking its previous single-day record set in the past few months. Just the day before, this $2.9 trillion company experienced a 7% plunge, evaporating over $193 billion in market value. NVIDIA's stock price has been fluctuating, with 8 instances of significant market value drops in July alone, outshining even volatile assets like Bitcoin. According to Caijing Finance, Deutsche Bank stated on Wednesday that after the explosive rise in NVIDIA's stock price in recent months, its future performance will mainly depend on the profitability of this AI chip manufacturer.
Deutsche Bank pointed out that NVIDIA's stock price has dropped by about 25% from its peak in June, wiping out over $800 billion in market value, and is currently attracting more attention. Deutsche Bank's "Chart of the Day" compared NVIDIA to Cisco (CSCO.US) because NVIDIA is a leading company in the AI investment frenzy, similar to how network equipment manufacturer Cisco was a "typical representative" of the 2000 tech bubble.
Jim Reid, Director of Global Economic and Thematic Research at Deutsche Bank, stated: "The reality is that the upward trends of these two stocks are similar, but ultimately, the key for NVIDIA (and the market's enthusiasm for technology and AI) will be whether it can achieve sustainable strong profits."
Deutsche Bank mentioned that NVIDIA's earnings far exceed Cisco's during the tech bubble peak, with a net profit of about $45 billion in the past 12 months, surpassing Cisco's net profit of around $30 billion. Reid noted that at today's prices, the latter's value is only equivalent to half of the former. He also pointed out that Cisco's P/E ratio once exceeded 200 times.
He said: "NVIDIA's historical P/E ratio has dropped from a recent peak of nearly 80 times to around 60 times, but if they can achieve the expected universal net profit of about $65 billion in the next 4 quarters, their historical P/E ratio will be around 35 times." He mentioned that by 2027, NVIDIA is expected to generate nearly $100 billion in net profit.
Reid mentioned that NVIDIA's disadvantage is its lack of sustainability in exponential profit growth. He said: "Until early 2023, NVIDIA's net income in the past 12 months was less than $4.5 billion, adjusted for inflation, lower than Cisco's net profit in 2000. Therefore, whether there will be significant differences in the future between NVIDIA and Cisco will likely depend on profitability and whether the recent strong performance will continue." NVIDIA's next earnings report will be released on August 28th. NVIDIA's stock price rose nearly 13% on Wednesday, after Morgan Stanley reinstated the semiconductor manufacturer to its preferred list following the recent sell-off