After a quarter century, Cisco surpasses dot-com bubble closing high

Cisco hit a new closing high on Wednesday, and in doing so finally surpassed the dot-com era peak that briefly made the tech hardware company the world’s most valuable corporation a quarter century ago.

Even after Thursday’s retreat, Cisco is up more than 30% for the year. Shares are on track for their second-best annual gain of the last 15 years, thanks in part to the company’s efforts to boost its profile in the AI data center boom.

(It has recently announced new products such as an optimized data center switches developed in partnership with Nvidia, and plans to take part in a data center joint venture with AMD and Saudi Arabia’s state-backed AI firm, Humain.)

And in a sense, 25-year round-trip journey for the share price tidily links two eras of technological and market ebullience.

A quarter century ago, Cisco was arguably the central player in an investment binge on a then new technology — the internet — that most thought was certain to remake the entire the US economy. (Spoiler: it did.)

In those days, Cisco’s products — switches, fiber-optic routers, and other communications gear that, as The Wall Street Journal wrote at the time, “enable computers to talk to one another” — were considered central to the internet’s growth.

And Cisco’s sales soared throughout the late 1990s, thanks to exploding demand and a flurry of acquisitions — it bought 73 companies from 1993 to 2000, according to Businessweek. From 1995 to 2000, revenue grew at an average rate of nearly 60% per year.

Along the way, investors fell in love with the stock, as it rose by roughly 4,000% between the end of 1994 and its zenith in March 2000. When its value peaked late that month at more than $550 billion, the 14-year-old company had elbowed past both Microsoft and General Electric to the top of the world’s corporate ranks.

Analysts extrapolated growth out from there, penciling in annual sales increases of more than 35% for the next two years.

In its story on Cisco attaining top-dog status in terms of corporate market cap, The Wall Street Journal reported that “Paul Weinstein, an analyst at Credit Suisse First Boston, forecast Cisco would become the world’s first company with a market value of $1 trillion.”

And just then, when things looked brightest, Cisco’s time in the sun was pretty much over. It wouldn’t see that closing high of $80.06 again until Wednesday.

Why? Well, things changed.

The investment boom focusing on rewiring the US economy for the web era suddenly started to slow in late 2000 and early 2001. And instead of growing at 35%, Cisco sales contracted in both its fiscal 2002 and 2003.

The result was a painful period both for Cisco employees — it shed 40,000 between 2001 and 2003 — and investors, who endured a collapse of nearly 90% in Cisco’s share price, before the worst was over in late 2002.

Cisco’s 25-year rebound back to dot-com highs surely shows the wisdom of holding on to stocks for the long run, right?

Well, even setting aside Keynes’ famous quip that in the long run, we’re all dead, that’s not exactly true. With the stock above $80, individual Cisco shareholders who have held since the late 1990s are back to where they started — but in aggregate, Cisco still isn't worth what it used to be.

That’s because Cisco has far fewer shares outstanding than it once did. (The company is a huge repurchaser of its shares.)

And as a result, its market value — basically stock price multiplied by shares outstanding — is still well below the total amount of shareholder wealth that once existed in the company. In fact, the value of the company, in terms of market capitalization, is roughly $250 billion lower than at its 2000 peak, when its share price climbed this high.

The saga of Cisco shows just how difficult it is — even for a company at the epicenter of a boom, like Cisco 25 years ago, or dare we say... Nvidia today — to know precisely where one stands when caught in the middle of a massive wave of investment and optimism such as the one supercharging the US market and economy right now.

And perhaps just as important, Cisco’s road back to its all-time high shows how just how difficult it is to return to those glory days once they’ve past.