• Cathie Wood’s outlook for Nvidia is slower growth, weaker demand, and fiercer competition.
• The Ark Invest CEO compared the chipmaker’s stock surge to Cisco’s during the dot-com bubble.
• Wood has cut her exposure to Nvidia as she believes the market’s hopes may be overblown.

Cathie Wood has sounded the alarm on Nvidia, warning its spectacular growth is likely to slow, and comparing its stock surge to Cisco during the dot-com bubble.

The tech evangelist and Ark Invest CEO made the striking comments in a letter to her shareholders on Thursday.

She drew a parallel between Cisco riding high on demand for network hardware during the internet boom in the early 1990s, and Nvidia selling record amounts of graphics chips to companies developing artificial intelligence today.

It’s a “similar technology moment in time,” Wood said. She recalled that Cisco stock soared by 31 times in the 3.5 years to March 1994, then tanked 51% over the next four months as recession fears and the release of rival offerings caused customers to cut back on orders.

The stock rebounded to rise 71-fold by the peak of the internet bubble in March 2000, but then crashed about 90% over the next few years and hasn’t come close to its dot-com highs since.

“Today, Nvidia is that company,” Wood said. She highlighted that the microchip stock has jumped 117-fold in the nine years since February 2015, and 23 times since October 2018, when the crypto winter hammered chip sales and sent Nvidia stock down 56% in three months.

Blistering growth

Wood’s point seemed to be that just as Cisco’s routers and switches enabled the internet revolution, Nvidia has emerged as the AI era’s defining company. And when a company plays such a key role in a new tech paradigm, it can see dramatic swings in its stock price.

Indeed, Nvidia has grown at a blistering pace in recent quarters as companies like Tesla and Oracle have scrambled to buy its chips. But the mad rush could mean its customers end up with double or triple the amount they need, Wood said.

She also noted that Nvidia is guiding toward a growth slowdown this quarter, and the wait time to secure its chips has shrunk from up to 11 months to as little as three months, signaling supply is catching up with demand.

“Without an explosion in software revenue to justify the overbuilding of GPU capacity, we would not be surprised to see a pause in spending,” Wood said.

Nvidia’s customers might also spend less on chips as they begin working through and reducing their inventories, she continued.

“Longer term, unlike the history with Cisco, competition could intensify, not only because AMD is finding success but also because Nvidia’s customers — cloud service providers and companies like Tesla — are designing their own AI chips,” she added.

Wood clearly sees the shine coming off Nvidia in the face of slowing growth, slimmer spending, and stiffer competition. But she made sure to caveat that the major AI advances in recent years have shown “anything is possible.”

The fund manager has grown increasingly wary of Nvidia in recent months. She disclosed in February she was cutting Ark’s exposure to the stock as “expectations could be getting ahead of themselves.”

Indeed, Nvidia stock has soared almost 90% this year, boosting the company’s market capitalization to more than $2 trillion. It’s now more valuable than Amazon or Alphabet, and only 13% behind Apple after being 1/47th as valuable as the iPhone maker a decade ago.

Ark’s website shows it holds just $64 million of Nvidia across its various funds, compared to $1.3 billion of Coinbase and $788 million of Tesla, its two largest holdings. Nvidia now ranks as its 41st biggest holding out of nearly 200.