Parabolic is parabolic, whether in the late 1990's, 2021 or today/China and Japan

Comparing the current market environment with the late 1990’s is now a common conversation and after having front row seats at that time, I can understand and some of the market moves I also saw in 2021 and I’m seeing again now are similar to what I saw then. That said, I’m not bothering with the comparison because as I mentioned in my notes a few weeks ago, a parabolic price move is a parabolic price move, whether with one stock or many. I don’t care when it has taken place. It is a vertical move in a stock that always ends the same way, about back to where the move started and I don’t care what the stock symbol is, what medical disease they are solving and what greatest technology ever product they have.

As we all did weeks ago we compared Nvidia’s extraordinary market move with what happened to Cisco in the late 1990’s with both being the back bone of major growing markets. So, what a parabolic move does is pull forward many years of future returns in a very condensed period of time. Did you know that Cisco had adjusted earnings per share in its July 2000 fiscal year of $.57. For its fiscal year 2024, the earnings estimate is expected to be $3.72. That is a 550% increase in earnings per share and you know what the stock has done since March 2000? It’s down in nominal terms by 38%. So stock prices follow earnings growth? Most of the time but a parabolic move steals quickly from that future.

Yes, I know the push back. Cisco traded then about 140x earnings and 31x sales, insane while Nvidia’s P/E ratio looks much more rational at 36x. But in a very cyclical business, assuming a 77% gross margin sustains itself for the next 5 years plus when its largest current customers are looking to be their competitors, along with current competitors, is heroic. Pricing relative to sales is a better perspective I believe and is currently 20x and assuming an average of 20% revenue growth for the next 5 years, by 2028 it will be trading at 10x sales. That said, the purpose of these comments is not to value Nvidia at all, and we own some for clients. What I’m just pointing out is the pull forward of future returns of massive parabolic stock moves that are taking place, as also seen in Super Micro and even Abercrombie & Fitch, Vistra (a utility and independent power producer) and even GE is looking like it.

As the legend Bob Farrell once said, “Parabolic advances usually carry further than you think, but they do not correct by going sideways.”

I also want to comment on another thing I heard last week from some. That was essentially, so what the market has lost a few of its superstars like Apple, Alphabet and Tesla because the market hangs in great as other things have stepped up and everything is fine. Yes but if the market is now relying on Nvidia, AMD and other semi names as the foundation now, that is a much more fragile ground because of the major cyclicality of that business. In terms of secular growers and linear trends, there was nothing like the industry creating businesses of Google, Apple and for a while Tesla. AI is just a tool, not a industry creating one like the ones here mentioned and semi’s will ALWAYS be a boom and bust business.

Nvidia

Super Micro Computer

Abercrombie & Fitch

Vistra

GE