On April 5, 1993, Jensen Huang, Chris Malachowsky, and Curtis Priem founded a company that would change the course of high technology forever: Nvidia.
But it didn’t start out that way…
At the time, the founders’ goal was to bring three-dimensional graphics to the burgeoning video game market. Back then, the Sega Genesis and Super Nintendo were all the rage.
But the games played on these consoles were limited. Games could only be played in two dimensions, with characters traversing through “levels” from left to right. To bring three dimensions to video games, new hardware would be needed.
The answer came in 1999 with the invention of the graphics processing unit (GPU). As the name suggests, this semiconductor is ideal for handling the computational demand to display complex, three-dimensional graphics.
The GPUs were a hit, so much so that Nvidia won the right to develop the graphics hardware for Microsoft’s upcoming Xbox game console, launched in 2001.
For years, Nvidia’s hardware was known as the gold standard for video game graphics. And it still is to this day.
If the story had stopped there, Nvidia would have had a nice business for itself. But it never would have become the behemoth it is today.
The next catalyst for Nvidia’s growth came in the mid-2000s and early 2010s. And it happened almost by accident.
It was discovered that Nvidia’s GPUs – originally designed for video games – had far-reaching applications.
These chips could be used to deliver the computational power for applications like crypto mining, cloud-based computing, and artificial intelligence (AI).
In 2012, Nvidia’s GPUs were used to power AlexNet, an early neural network. This was still the early days of modern AI.
But the company saw the future clearly. During a commencement speech at National Taiwan University, CEO Jensen Huang admitted that “We risked everything to pursue deep learning.”
And that risk paid off…
Today, Nvidia is known as the undisputed king of AI hardware.
On June 16, Nvidia (NVDA) joined the exclusive “Trillion-Dollar Club” when its market capitalization surpassed the $1 trillion mark. And it remains one of the greatest success stories in technology and investing.
But here’s what might surprise you: I do not recommend buying Nvidia today. And I’ll show you why…
Rapid Growth Is Over
The reality is that at a $1 trillion valuation, Nvidia’s best days of growth are behind it.
At the right price, investors may be able to see respectable double-digit returns with Nvidia over the long term. But the days of rapid, triple-digit returns have come and gone.
But just because we’re not investing in Nvidia doesn’t mean we can’t profit from its success. It all comes down to something I call the “Nvidia Effect.”
Here’s what I mean…
The reality is that when a company becomes as large as Nvidia, every move it makes impacts the smaller companies that support its operations.
And it’s these smaller companies leveraged to Nvidia that will see the largest returns in the months and years ahead.
And you don’t have to take my word for that. We’ve seen this play out before.
Find the Suppliers
On January 26, 2021, Tesla set a new all-time high of $294.
It marked a 1,390% gain over the previous two years. That’s enough to turn every $10,000 into $149,000.
It was also enough to make CEO Elon Musk the world’s richest man, with an estimated net worth of $195 billion.
Tesla was a stock market sensation. It was the stock that embodied the electric vehicle revolution.
But investors who were late to recognize the electric vehicle trend were left with a tough decision: They could purchase shares of Tesla at a high valuation or sit on the sidelines.
Today, Tesla trades around $260. That means investors were right to be cautious about buying in at such a high price.
But there was a third option. And it was an option that would give investors a second chance at Tesla-like gains.
On July 16, 2021 – six months after Tesla’s new peak – a tiny semiconductor testing company called Aehr announced on its earnings call that it had landed a “major Fortune 500” customer. The CEO went on to mention Tesla 11 times on the call.
Shares of this penny stock jumped 22% from $2.81 to $3.43 on the news. But that was only the beginning.
Securing a partner like Tesla also elevated Aehr’s visibility… attracting more clients and institutional investors.
AEHR’s revenue tripled from $16 million in 2021 to $50 million in 2022. Its market cap grew from $60 million to $1.3 billion during that time.
If you’d invested within a month after the partnership was announced, you’d have between a 650% and 1,211% gain. That’s enough to turn a $10,000 investment into $75,000 or $131,100.
If you’d bought Tesla shares during that same time, you’d only be up between 8% and 21% on your investment.
This is a perfect example of the opportunity we have today.
The Nvidia Effect
Nvidia is a great company. It’s the undisputed king of AI hardware. But it’s not my favorite way to play the AI megatrend.
Instead, our strategy will be to target the smaller, lesser-known suppliers that make Nvidia’s dominance possible.
As I said, I refer to this as the “Nvidia Effect.” And I recently hosted a special broadcast where I revealed the full potential of the Nvidia Effect, and even shared details on a small supplier I have my eye on right now.
This small company is a fraction of the size of Nvidia, and that means the upside is much higher.
Editor, The Bleeding Edge