Hope versus reality

As the saying goes: “You only know if it was a bubble once it bursts.”
Looking at NVIDIA today versus Cisco during the Internet bubble highlights the difference between multiple expansion and earnings growth.

Cisco’s share price in 2000 surged far ahead of earnings that never materialized, leading to a painful collapse. NVIDIA, by contrast, has seen an exponential rise in both earnings and share price, fueled by its dominant position in the AI revolution.

At 31 times forward earnings, NVIDIA looks expensive at first glance. But with earnings expected to grow by 41% annually over the next five years – after already generating $72 billion in net profits last year – the valuation remains, at least for now, somewhat defensible.

At ECP, we acknowledge NVIDIA’s extraordinary fundamentals, technological leadership, and scale. Still, history teaches us to remain vigilant: even the strongest growth stories can turn if valuations run too far ahead of reality.