NVIDIA Faces Risk of 80% Plunge, Raising Dotcom Bubble Repetition Concerns

NVIDIA Stock Plummets 13% in Three Days
Cisco Shaken by 80% Drop in 2001
Stock Direction in Focus... Market Offers Mixed Outlook

The AI leader Nvidia, which had been soaring relentlessly, saw its stock price plunge 13% in just three days, entering a correction phase. This has raised concerns that it might be following the same path as Cisco, a network equipment company that collapsed during the early 2000s dot-com bubble. Opinions on Nvidia's stock and the direction of the U.S. stock market are divided.

[Image source=AFP Yonhap News]

According to Bloomberg and MarketWatch on the 24th (local time), Nvidia's stock closed at $118.11 (approximately 163,700 KRW) on the New York Stock Exchange, down 6.68% from the previous session. This is the largest drop since April 19 (-10.0%) and a 12.8% decline over three trading days. The market generally considers a drop of more than 10% from the peak as entering a technical correction phase.

Nvidia's stock price rose to $135.58 on the 18th, surpassing Microsoft (MS) to become the largest by market capitalization, but it declined for three consecutive trading days starting from the 20th. On that day alone, Nvidia's market cap shrank by $208 billion, recording $2.9055 trillion.

As Nvidia's stock, which had been on an endless upward trend, suddenly plummeted, the market has presented mixed views. This is because Nvidia had previously fallen about 20% from the end of March before turning upward again. A Bloomberg survey of Wall Street analysts showed that 9 out of 10 still maintain a buy rating.

However, some argue that Nvidia is currently overvalued due to its rapid stock price surge from last year to this year. Nvidia's stock is trading at about 21 times its projected revenue over the next 12 months, the highest among S&P 500 constituents. Buff Dormaier, an analyst at Kingsview Partners, commented, "It is concerning that the stock price has fallen despite all the positive factors such as the stock split and reaching the number one market cap."

Given this situation, some pessimists point out that Nvidia might be following the same stock price trajectory as Cisco during the 2000 dot-com bubble. Cisco overtook MS to become number one by market cap in March 2000, but its stock price crashed by about 80% the following year due to the bubble burst. Excessive investment in the internet at that time caused the bubble collapse, and similar concerns arise now as big tech companies are pouring investments into AI.

However, there is also analysis that the two companies should not be viewed as identical cases. John Chambers, who was Cisco's CEO in 2000, told The Wall Street Journal (WSJ) that while there are several similarities between the two companies, the dynamics of the AI revolution differ from those of the previous internet revolution or cloud computing innovation. He said, "AI represents a market opportunity that is greater than the combined scale of the internet and cloud computing," adding, "The speed of change, market size, and the stage at which Nvidia has reached as the most valuable company are all different."