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While NVIDIA made history this week after surpassing Microsoft to become the world's most valuable company, it isn't the first time that a technology firm has beaten Microsoft to claim the throne of market capitalization. Microsoft, which is one of the oldest technology companies in the world after being set up in the tech gold rush of the 1970s, has been right at the top of the market value chain for years. The firm's founder, Bill Gates, became the world's richest man before Google's co founders, Amazon founder Jeff Bezos or Tesla chief Elon Musk. Microsoft stock first peaked in the 1990s, after its dominance in the personal computing industry was cemented.
However, at the peak of the dotcom bubble, the Redmond-based software firm's market value was eclipsed by the networking equipment manufacturer Cisco, which was favored by Wall Street due to its ability to power up the Internet.
Cisco Beat Microsoft To Become World's Most Valuable Company On March 25th, 2000
Cisco's story to surpass Microsoft in market value took place in early 2000 when the dotcom bubble was at its peak. Investors, already impressed by the ability of the Internet to connect the world and the firm's growing revenue, piled heavily into the shares since Cisco's routers stood at the very heart of Internet connectivity. However, after the dotcom bubble popped, Cisco's shares lost more than 80% of their value, despite the fact that the firm's underlying fundamentals remained unchanged and it maintained its growth trajectory.
During the year, Cisco's shares gained roughly 30%, while Microsoft faltered due to its legal battles. Back then, Microsoft was facing legal action from the US government over allegations of acting as a monopoly and locking others out of its software ecosystem. Investors were bracing themselves for any negative legal outcome, and since Cisco didn't face similar threats, its shares continued their upward trend. At the close of trading on March 25th, 2000, Cisco was worth $579.2 billion, or a billion more than Microsoft's market cap of $578.2 billion
Investor optimism in Cisco's shares was well warranted at the time, too. The firm grew its revenue by 55% annually in 2000, and over the next two decades, Cisco would grow its revenue four times to sit at roughly $50 billion. Yet, at the peak of the dotcom era, Cisco was trading at a price to earnings ratio of 201 and a price to free cash flow ratio of 176. These ratios value the market sentiment of a firm relative to its ability to generate a profit and cash, and Cisco's latest P/E ratio is a more down to earth 16.
These valuations for Cisco came when the firm's revenue jumped from $2 billion in 1995 to $19 billion in 2000. This was before the global financial crisis and the subsequent low interest rate era, which means that in today's dollars, the value of Cisco's revenue in the 1990s and 2000 is much higher.
While the dotcom bubble popped, and investors were no longer hyped up about Cisco's ability to fuel the Internet, the firm managed to nevertheless grow revenue despite bleeding nearly all of its market capitalization. From the $19 billion in sales in 2000, Cisco's revenue grew by roughly 16% to sit at $22 billion the next year and dip back to $19 billion in 2002. In 2023, its revenue sat at $56 billion, while Microsoft, powered by its cloud computing and other divisions, brought in $211 billion.
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