How to Spot a Stock Bubble: From Nortel to Nvidia
Measuring implied expected revenue growth is a good test
A headline in the March 4, 2024 Wall Street Journal blared: “Nvidia’s Surge Stirs Talk of a Bubble.” Is it déjà vu all over again? Didn’t we see this type of thing in the mid-to-late 1990s? Then it was the internet. Now it’s artificial intelligence. Sure, back then there were quirky but epic flare-outs like pets.com and it’s lovable sock puppet in the Please Don’t Go Super Bowl 2000 ad campaign, singing off-key to Chicago’s “If You Leave Me Now.” But there were also the serious internet infrastructure companies like Cisco Systems and Nortel Networks Corp., network equipment manufacturers. Cisco survived, but Nortel didn’t. Perhaps the closest AI-hype equivalent today is Nvidia Corporation, designer and supplier of graphic processing units (GPUs) that fuel AI companies. While not a perfect comparison, it’s worthwhile to go back in time to see what happened in the dot-com heyday. Can we use history to spot a stock bubble today?
First, a disclaimer. Here’s why you shouldn’t listen to what I have to say about spotting stock bubbles. Around 2000, I was a regular columnist for the Globe and Mail’s monthly Report on Business magazine. I tried to give a scholarly perspective of current investment stories. On March 10, 2000, the tech-heavy Nasdaq…
