One of the most outspoken investors on Wall Street is Cathie Wood, the founder of ARK Invest. Wood is best known for making big bets in emerging areas of technology and healthcare.
In a shareholder letter published earlier this month, she suggested that Nvidia (NVDA +1.67%) could end up like Cisco in the aftermath of the dot-com boom in the early 2000s.
Given the meteoric rise in Nvidia's stock price over the last year, it's reasonable to believe a pullback could be on the horizon. But calling for a crash akin to Cisco? That seems dramatic.
Instead, I think a different "Magnificent Seven" stock could be at risk of falling out of favor with investors. Let's dig into why I see Apple (AAPL +2.65%) as much more likely to follow in Cisco's footsteps.
NASDAQ: AAPL
Key Data Points
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 of solving latent needs. With the iPod, iMac, iPhone, iPad, and AirPods, the company revolutionized personal computing, communications, and entertainment in ways that people didn't even realize were needed.
The company's long list of innovative hardware made it one of the most recognized brands around the world.
Image source: Getty Images.
The artificial intelligence race is on
As investors salivate over all things related to artificial intelligence (AI), Apple is yet again remaining 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 overcommunicating might be an appropriate strategy right now. 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, rather than the actual use of the technology in their daily lives.
After years of playing coy, news broke earlier this month that the company was abandoning its electric vehicle (EV) ambitions. And big tech cohorts Alphabet, Amazon, and Microsoft all dominate cloud computing -- a movement that Apple missed entirely.
Apple only recently made headlines in the AI realm following its acquisition of a start-up called DarwinAI. While this deal was interesting, details surrounding how it plans to leverage DarwinAI are sparse.
By contrast, Nvidia is aggressively entering new AI markets that it can disrupt. For example, the company is an investor in humanoid robotics start-up Figure AI, as well as a partner with enterprise software platform Databricks.
Among mega-cap tech companies, Nvidia is emerging as the front-runner in AI. Demand is soaring for the company's graphics processing units (GPUs) and data center services.
In 2023, Nvidia's revenue increased 126% year over year, while profits and free cash flow grew nearly sixfold. On the other hand, Apple's revenue has been in decline 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 during the early stages of the internet age. But after competitors began producing similar products, Cisco failed to pivot and move on. Given Nvidia's broad reach across the AI spectrum, I find Wood's comparison to Cisco lacking.
Sure, like Cisco back in the late 1990s, Nvidia stock soared to unprecedented levels. But I think the company's momentum is just getting started. The long-term narrative surrounding AI is encouraging, and right now the chipmaker appears to be the engine powering all sorts of applications.
By contrast, Apple stock trades at a forward price-to-earnings (P/E) multiple of 26 -- higher than both Meta Platforms and Alphabet as of the time of this writing. It's tough to justify this premium when the company appears to be at a crossroads. It isn't growing, demand for its products is in decline, it abandoned EV's, and it doesn't appear to have any tangible strategy related to AI.
Could competition ultimately pose a threat to Nvidia? It probably will. But this is why I find the company's investments in robotics and software to be savvy moves. It is clearly exploring markets beyond its core chip business, which will hopefully prove fruitful in the long run.
Given the amount of unknowns surrounding Apple, I see the company as an enigma right now. As an investor, I'm not concerned about Nvidia's prospects. But given the lack of innovation from Apple for several years, I think there is a real possibility the company could end up in a situation similar to that of Cisco at some point.
