I am mostly a technical analyst and trading system developer, but I also like to understand the companies behind the big business trends. AI is the hottest trend right now and has the potential to be bigger than the Internet. To this end, I am getting up to speed through a variety of sources. Today’s report will share a couple of sources for understanding AI and Nvidia. We will then rehash Cisco’s run during the internet boom and Apple’s amazing moonshot after its iPhone moment.
AI Podcasts
BG2 podcast with Bull Gurley and Brad Gerstner. BG2 covers AI from technological and investing standpoints. These two recently highlighted the growing need for energy to run the AI Data Centers.
Acquired Podcast with Ben Gilbert and David Rosenthal. Acquired covers a variety of issues with some seriously deep dives. They covered Nvidia in September 2023 and the key points are still valid today. This is a great resource for understanding Nvidia, CEO/Founder Jensen Huang and their vision. In short, Nvidia is not just a chip producer. Nvidia offers a complete solution (a platform) for running AI: advanced chips, software and data center.
Momentum Strategies Find the Leaders
As with the Internet boom, there will be big winners and big losers. It is hard to pick the winners ahead of time. This is where momentum-rotation strategies come into play. These strategies own the leading stocks and exit when a stock stops leading. Such strategies would have sold Lycos, Altavista, eToys, Pets.com and others when they started lagging. And long before they went bankrupt. More importantly, these strategies benefit from a few stocks that produce exponential gains. For example, the Nasdaq 100 Dual Momentum Rotation Strategy held Nvidia (NVDA) from March to November 2016 (+155%) and Moderna (MRNA) from October to December 2020 (+120%).
Eight Years of Cisco
The next chart shows eight years of Cisco (1992 to 2000) with some Internet milestones along the way. I am using Cisco as an example because many are comparing AI to the Internet. Two external events and one internal event punctuate this period. First, there was the bond market crisis when the 10-yr Treasury Yield surged from 5.6% in January to 8% in November 1994. This sharp rise in rates jolted a lofty stock market and CSCO fell around 65%. It soon bottomed and surged to new highs. The next two events were external with Asian Financial Crisis and Russian Financial Crisis. The stock quickly recovered after each. The lessons here. US interest rates and the 10-yr Treasury Yield matter, especially when they rise fast. External events often do not matter.
Twenty-Five Years of Apple
The next chart shows Apple (AAPL) from 1997 to 2023. The company rose from the dead with the dotcom bubble (1998-1999) and then fell hard into 2002. It released the iPod in October 2001 and then launched iTunes in April 2003. The rest is history. Apple went on to launch the iPhone in January 2007, the iPad in January 2010 and the Watch in September 2014. There were also some Mac’s along the way and everything fed into iTunes (the App store). I chose Apple because Nvidia’s CEO (Jensen Huang) said “this is AI’s iPhone moment”. This was during an earnings call in May 2023. Boy, did he get that right.
Eleven Years of Nvidia
The chart below shows Nvidia over the last eleven years. The stock was trading around $5 in 2014 and exceeded $850 in April 2024. There are three exponential advances along the way: 900%, 800% and 700%. The first two occurred in around 2.5 years and the third is a work in progress (1.5 years and counting). The first advance was 180% in 3 years. Given the prior up cycles, this advance in Nvidia could have another 12 months to go. There could, of course, still be pullbacks along the way.
AI and the Nvidia Platform
Apple released the iPhone in 2007 and the stock rose for another 14 years. There were at least six sizable “pullbacks” during this 14 year period. The Internet kicked off in the early 90s and the Netscape IPO was in August 1995. There were some hiccups along the way, but the Internet phenomenon gripped the market for another 4.5 years. The pullbacks between August 1995 and March 2000 were minimal, except for the two external shocks. If AI is going to be as big as the internet and Nvidia is the Cisco of AI, this stock could run for a few more years.
I did not understand the dominance of Nvidia in the AI space until I listened to the Acquired podcast. I also did not know that Nvidia is the only company providing a complete solution (a Platform) and they are well ahead of the nearest competitor. I realize that Alphabet, AMD and Intel are working on chips, but nobody offers the complete package (best-in-class chips, customizable software and data centers). It could be early innings if AI is as big as expected and NVDA remains dominant for a few more years.
