During the recent Cisco (NASDAQ: CSCO) Live event, the worldwide leader in IT and networking announced a new partnership with the AI giant Nvidia (NASDAQ: NVDA), and this partnership will see the two companies collaborating to launch a new AI data center solution, aimed to simplify the deployment of generative AI applications. The event showcased the Cisco Nexus HyperFabric AI cluster solution, which integrates Cisco’s networking capabilities with Nvidia’s computing power and AI software.
This partnership between the two companies, which are often compared, shows their shared commitment to advancing enterprise AI capabilities, as it’s expected to offer enterprises the necessary tools to build intuitive AI-native networks, anticipate system failures, and address issues promptly.
The Partnership
Nvidia and Cisco are looking to provide a new AI solution, which is designed to provide IT visibility and analytics across the entire AI infrastructure stack, enabling enterprise customers to build and run generative AI models and inference applications with ease. Cisco’s cloud management capabilities facilitate deployment, management, and monitoring of data centers, colocation facilities, and edge sites.
According to a recent Global Networking Trends Report by Cisco, within the next two years, 60% of IT leaders expect to adopt AI-enabled predictive network automation, while 75% plan to implement tools for end-to-end network visibility. The Cisco Nexus HyperFabric AI cluster is a response to these trends, offering a unified compute and networking fabric that simplifies IT operations. The solution features Cisco Nexus 6000 series switches, Nvidia AI Enterprise software, Nvidia Tensor Core GPUs, and the Vast Data Platform. It aims to streamline the development and deployment of AI workloads, providing a single console for design, deployment, monitoring, and assurance of AI infrastructure.
Some select customers are already anticipated to have early trial access in Q4 of this year, with general availability expected to follow shortly. Cisco is also introducing AI-related skills training and certifications for IT professionals and partners to support the deployment and management of AI infrastructure. The companies said that this partnership is part of their broader vision to automate and simplify networking, and it underscores their efforts to empower customers through AI-driven innovation, potentially opening new revenue opportunities.
What it Means for NVDA Stock
Nvidia’s CEO, Jensen Huang, recently said that AI is doubling every six months, and it’s clear now that it’s going to move way faster than that soon enough. This is why Nvidia is so interested in enterprise AI, as it expects all companies in all industries to start developing or using AI technologies. The market for enterprise AI is rapidly evolving, and analysts expect it to witness a compound annual growth rate of 44.1% to reach $270 billion by 2032. On the other hand, the generative AI market is massive on its own, and it will definitely cross $1 trillion by 2030.
There’s a massive opportunity for both Nvidia and Cisco thanks to this partnership, and the two stocks are ones that investors should definitely watch out for, especially NVDA stock, as no company embodies the AI boom more than Nvidia, whose GPUs are being used in data centers to power AI applications. Nvidia’s growth has been extraordinary. The company grew its revenue an incredible 262% in Q1 to $26 billion, with data center revenue soaring 427% from a year ago to $22.6 billion.
With Nvidia’s growth, investors have benefited, with NVDA stock more than tripling over the past year. Not surprisingly, the AI revolution has led to comparisons between the Internet boom and bust, and the company that Nvidia is most compared to is Cisco, which was the backbone of the Internet. Cisco became the world’s most valuable company in 2000, but its stock crashed soon afterwards and Cisco investors never fully recovered, and the stock still trades well below its all-time high today.
Is Nvidia the New Cisco?
We can’t deny that there are some similarities between Nvidia’s rise to the top and Cisco’s, but there are differences as well. Back in 2000, Cisco was primarily a hardware business, and this is important because software revenue is more recurring and higher margin. This is where Nvidia differs from Cisco. Nvidia’s CUDA software platform has been a key differentiator for the company since it was introduced in 2006, even though Nvidia gives it away for free.
CUDA allows Nvidia GPUs to be programmed directly, saving customers time and money. By the time alternatives evolved, Nvidia GPUs had already become the industry standard. This created a wide moat for the company. On the other hand, Cisco in 2000 was just getting started when it came to software with the introduction of its CiscoWorks2000 network management software at the same time its stock peaked. Now, software is about a third of its revenue.
Nvidia and Cisco’s customer bases are also very different. Cisco was heavily selling into the cable and telecom industries, where companies typically carry meaningful leverage and have unpredictable capex cycles. Meanwhile, Nvidia operates in the data center industry, where companies like Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG, GOOGL) preside. This gives Nvidia a more stable customer base, which is another positive for investors.
NVDA Stock Forecast
Nvidia won’t at all suffer the same fate as Cisco, and comparing the two companies doesn’t really make a lot of sense. Right now, Nvidia trades at a much lower valuation than Cisco did at its peak in March 2000. At its highs, Cisco had a nearly 200x PE ratio. Nvidia, meanwhile, trades at around 67x PE, and has been growing its revenue more quickly. For instance, in 2023, Nvidia’s revenue surged 126%, while Cisco’s revenue rose 55% in its fiscal year 2000.
The main risk facing NVDA stock right now is demand drying up, but this is unlikely to happen anytime soon. In fact, right after the company’s Q1 earnings call, Jensen Huang said in an interview that demand for the company’s flagship H100 chips is still so strong, even as they prepare to launch the more powerful Blackwell GPUs later this year.
He said that the company’s customers want to put Nvidia’s GPUs to work right away, and start making money and start saving money. He also said that H100 demand grew throughout the quarter, right after the company announced Blackwell, so Nvidia won’t be seeing a demand problem anytime soon. Jensen added that demand for both platforms will outstrip supply well into next year, with the complexity of these chips also challenging the company’s efforts to keep pace. If anything, that means huge revenue streams for the next 2 to 3 years or even more.
NVDA stock is currently one of the best growth stories in the market, and while investors need to be aware of the risks, AI still appears to be in the early innings, with nearly every company in the world talking about it. Therefore, investors can continue to ride the wave of Nvidia’s great growth.
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