Everyone's Running Toward Nvidia — Here's Why You Shouldn't Be

Michael Robinson

Tuesday, August 29, 2023

Software company Nvidia (NVDA) has stolen much of the spotlight recently — and with good reason.

Last week, the company announced it doubled its quarterly earnings in a single year. That's a rare feat.

Three months ago, Nvidia projected total sales of $11 billion for Q2 2023. Most analysts figured that forecast was way off the mark. And it was, because the actual number was 22% higher.

In just the past year, the company's stock has climbed more than 186%.

Simply put, Nvidia is on fire right now — you'll learn why in just a moment — and a lot of investors have been eager to scoop up shares of its stock.

But should we join them? Not so fast...

A Case of Deja Vu

Nvidia's impressive rise reminds me of a phenomenon that happened about 30 years ago.

Back then, a new technology — one that more than one "expert" called a fad — was taking the world by storm. It was called the internet.

Almost overnight, companies were realizing that this technology was essential to doing (and growing) business. The thing is, one company held a virtual monopoly when it came to getting these businesses online.

I'm referring to Cisco Systems (CSCO), which supplied routers that facilitated internet connections.

On February 19, 1990, shares of Cisco were trading for just eight cents, according to Yahoo! Finance. But 10 years later, the stock closed at $77.37 a share. That's a mind-blowing 10-year rise of more than 96,000%, enough to turn $100 into almost $100,000!

Basically, Cisco was the key connection between companies around the world and the internet. And now it's Nvidia's turn to play a similar role...

AI = The Next Internet?

You see, spending on Artificial Intelligence ("AI") is skyrocketing. International Data Corp says it's increasing 26% a year. By 2025, annual spending will reach $120 billion.

AI applications like natural-language processing, machine learning, and generative AI (AI capable of creating text, images, and other media) have potential in a number of industries, including aerospace, defense, healthcare, advertising, and data storage.

The thing is, specialized chips are needed to make these applications possible. And who makes these chips? You guessed it: Nvidia!

That's the main reason this company has taken off. As a recent Axios article noted, demand for its chips "has put the company at the white-hot center of AI investment, and left Nvidia with more demand than it can handle."

Meanwhile, a Futurism article from this past weekend noted, "If AI is a Gold Rush, Nvidia is Selling Shovels."

That headline is a reference to an adage known as "picks and shovels." Essentially, during the 1800s gold rush, you could try and strike it rich by digging for gold, or you could set up shop and make virtually guaranteed money by selling picks and shovels to every digger.

In the investment world, it's a de-risking strategy that involves identifying a single company that's positioned for success, regardless if other companies in that sector make it big or strike out...

And that certainly applies to Nvidia.

The Numbers are Impressive

As I mentioned, this company has achieved headline-worthy success.

Earlier this summer, it became the first chip maker to pass the trillion-dollar market cap threshold. And in Q2 2023, the company blew the doors off with respect to earnings. Per-share profits grew by 429%, 17 times higher than the stock's three-year average.

Longer-term, Nvidia's stock has climbed roughly 550% over the past five years. During that stretch, it beat the S&P 500 ten times over.

Given all that, why wouldn't you invest in this company? I've got two reasons...

Stay Away

First, buying shares of Nvidia would violate one of my key investing rules:

Never chase a "hot stock."

Last Friday, Nvidia shares closed down 2.4%, while the tech-centric Nasdaq Index ended up by about one percent. That's lackluster performance for Nvidia, especially considering the stock had a lot of forward momentum.

Second, to maximize your profit potential with AI, you should focus on other ways to invest.

For example, you could target sectors like software and computer-memory systems, two areas where AI is set to play a starring role...

You could take a broad approach and invest in an AI-focused exchange-traded fund (I've compiled details on an intriguing one to present to my "Pro" readers below)...

Or you could take advantage of my favorite way to invest in AI's rise. It's a company specializing in programmable chips, a breakthrough technology that enables clients to reconfigure their semiconductors out in the field.

This company is an earnings powerhouse. Over the past three years, its per-share profits have grown an average of 51% — twice as fast as Nvidia's over that period.

All the details about this opportunity are ready for you.

To learn more, simply join my Digital Fortunes service.

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