Cisco Systems Becomes Backdoor AI Play With Nvidia GPUs
The former internet behemoth is partying like it's 1999 again.
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The '90s were fun. We had "Seinfeld" on TV and Stone Temple Pilots on the radio.
We also had an amazing market for tech stocks. In 1999, the Nasdaq Composite gained 85%. It was by far the best annual return in the history of the tech-heavy index.
One of the leading stocks of 1999 was internet behemoth Cisco Systems CSCO. The San Jose-based networking giant gained 130% that year, on the heels of a 149% return in 1998.
What happened next? The Nasdaq peaked in March of 2000, as did Cisco, which by now was one of the largest stocks on the index. Twenty-five years later, the stock has failed to regain its 2000 high of $77.
That could be about to change. In the world of tech stocks, where the conversation is dominated by AI, Cisco Systems — along with other names in the networking sector — is rising from the ashes.
Cisco has gained a modest 18% year to date, and has climbed only 25% over the past five years. However, over the past four months, the Cisco kid has gained 31%.
Cisco Systems has been trending higher within a bull channel (black dotted lines). Notice how the stock’s trend line and 50-day moving average (blue) form a wall of support for the stock.
What is most impressive about Cisco’s chart is the huge increase in volume (green arrow) that occurred when the stock found support last week. Cisco’s volume on December 20 was its highest this year, an indication that institutional traders were aggressive buyers on the recent pullback.
Cisco isn’t alone. Several other names in the networking sector are gaining traction. Like Cisco, these stocks have seen their gains accelerate during the second half of 2024.
Netgear NTGR, also based in San Jose, has gained 98% year to date, and 89% over the past six months.
Extreme Networks EXTR, based in the research triangle in North Carolina, is flat for the year, but has gained 39% over the past six months.
Cisco is gaining attention from investors due to its recent entry into the AI data center server market. The company recently indicated that it will use Nvidia GPUs in its AI-optimized servers.
While Cisco isn’t a pure AI play, the company could be considered adjacent to that sector. The company’s valuation, in terms of price-earnings ratio, is lower than that of the S&P 500. In an increasingly overvalued market, Cisco could be considered a backdoor AI play at a reasonable price.
At the time of publication, Ponsi was long CSCO.
