Cathie Wood thinks Nvidia could end up like Cisco after the Dot-Com crash. Here’s the “Magnificent Seven” stock I’m more concerned about.

By | March 30, 2024

One of the most outspoken investors on Wall Street is Cathie Wood, the founder of ARK Invest. Hout is best known for his strong commitment to emerging areas of technology and healthcare.

She suggested as much in a shareholder letter published earlier this month Nvidia (NASDAQ: NVDA) could end up as Cisco in the wake of the dot-com boom of the early 2000s.

Given the rapid rise in Nvidia’s share price over the past year, it’s reasonable to assume a pullback is in the offing. But calling for a crash similar to Cisco? That seems dramatic.

Instead, I think another ‘Magnificent Seven’ stock is at risk of falling out of favor with investors. Let’s see why I see it Apple (NASDAQ: AAPL) It is much more likely that they will follow in Cisco’s footsteps.

Solving latent needs

Latent needs are an interesting concept. Simply put, a latent need is a problem that people don’t even realize they have.

Apple is the king in solving latent needs. With the iPod, iMac, iPhone, iPad and AirPods, the company revolutionized personal computing, communications and entertainment in ways people didn’t even know were needed.

The company’s long list of innovative hardware made it one of the most recognized brands in the world.

Someone who tries to come up with ideas

Image source: Getty Images.

The artificial intelligence race has begun

While investors drool over all things artificial intelligence (AI), Apple is once again tight-lipped about its plans. I don’t think this is the best move after some of the company’s flops in recent history.

Given how quiet the company has been on the innovation front, I think over-communication could be an appropriate strategy at this point. Sure, it just shipped its virtual reality (VR) headset, the Vision Pro. But for now, I think people are more intrigued by the idea of ​​VR than by actually using the technology in their daily lives.

After years of holding back, news broke earlier this month that the company would abandon its electric vehicle (EV) ambitions. And large technology cohorts Alphabet, AmazonAnd Microsoft all dominate cloud computing – a move that Apple has completely missed.

Apple only recently made headlines in the AI ​​space after acquiring a startup called DarwinAI. While this deal was interesting, details on how the company plans to leverage DarwinAI are scarce.

Nvidia, on the other hand, is aggressively entering new AI markets that it can disrupt. For example, the company is an investor in the humanoid robotics startup Figure AI, and a partner in the enterprise software platform Databricks.

Among megacap tech companies, Nvidia is emerging as a leader in AI. Demand for the company’s graphics processing units (GPUs) and data center services is soaring.

In 2023, Nvidia’s revenues rose 126% year over year, while earnings and free cash flow grew nearly sixfold. On the other hand, Apple’s revenues have been declining for a year as demand for luxury hardware devices has stalled against the backdrop of a tough economy.

The innovator’s dilemma

Cisco is one of the most interesting case studies in recent business history. The company was hailed as a leading innovator in the early stages of the Internet age. But after competitors started producing similar products, Cisco failed to move forward. Given Nvidia’s broad reach across the AI ​​spectrum, I think Wood’s comparison to Cisco falls short.

Certainly, like Cisco in the late 1990s, Nvidia shares soared to unprecedented levels. But I think the company’s momentum is just beginning. The long-term story around AI is encouraging, and right now the chipmaker seems to be the engine powering all kinds of applications.

In contrast, Apple shares trade at a price-to-earnings (P/E) ratio of 26 – higher than both Metaplatforms and Alphabet at the time of writing. It’s hard to justify this premium when the company seems to be at a crossroads. It’s not growing, demand for its products is declining, it has abandoned electric vehicles, and it doesn’t seem to have any tangible strategy regarding AI.

Could competition ultimately threaten Nvidia? Probably. But this is why I think the company’s investments in robotics and software are smart moves. The company is clearly exploring markets beyond its core chip business, which will hopefully be fruitful in the long term.

Given the amount of obscurity surrounding Apple, I consider the company an enigma at this point. As an investor, I’m not concerned about Nvidia’s prospects. But given Apple’s lack of innovation over several years, I think there’s a real possibility that the company will find itself in a situation similar to Cisco at some point.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Cisco Systems, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

Cathie Wood thinks Nvidia could end up like Cisco after the Dot-Com crash. Here’s the “Magnificent Seven” stock I’m more concerned about. was originally published by The Motley Fool

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