Tuesday, February 28, 2023
I want to revisit profitable advice I handed down last November...
And I do mean profitable!
At the time, I told you to avoid investing in Mobileye Global (MBLY) because its recent initial public offering ("IPO") made the stock too choppy for retail investors.
You may have doubted me at the time. And given the stock's roughly 8% increase so far this year, I can understand why it may look like I was off base.
But here's the thing: The company I advised you to focus on instead has performed significantly better – we're talking gains of nearly 60% since January 1. During that time, those returns have outpaced Mobileye's by more than 600%.
To be clear, I'm not writing today to take a victory lap. Instead, I want to re-recommend this company...
Because there is still so much upside ahead.
I'll quickly acknowledge that as an analyst with an extensive background in the auto industry, I have a lot of respect for Mobileye. And I certainly did back in November. At the time, I noted...
There's no question Mobileye is a leading maker of driver-assistance and vehicle automation systems for cars. The company's cameras, chips, and software are used in cars from BMW, General Motors (GM), Ford (F), and Toyota (TM).
It pioneered the addition of smart chips to otherwise simple cameras, allowing car makers to slot in advanced automation features without having to develop their own Artificial Intelligence ("AI") platforms.
The end result is that if you've ever used lane-keeping assistance, blind spot monitors, self-parking, tire pressure warnings, or similar features, chances are you were using Mobileye technology.
So why was I so risk-averse to this company? The answer has to do with something I noted earlier: New stocks can, and often do, take investors on a roller coaster ride.
Mobileye's stock took off earlier this year along with the boom in autonomous and electric vehicles ("EVs"). As a result, you could have made some nice gains.
But if you invested in this company and ignored the other one I recommended, you left a lot of money on the table.
That's because the storied Silicon Valley chip leader I recommended didn't just crush Mobileye's gains, it ran laps around the broader market.
Let's put its 60% gains for 2023 into a broader context.
As of last Friday, the S&P 500 was up roughly 3.4%. That means the chip leader I preferred smoked the broader market by nearly 16 times, or more than 1,600%.
"In a case like this," I noted back on November 15, "I greatly prefer to steer investors to a leader with a long-term track record where we can make money now."
That sure turned out to be the case with the company I'm referring to...
Nvidia (Nasdaq: NVDA) may be best known for its graphics chips, but it's also a giant in the autonomous car space.
You may recall that the company has successfully leveraged its leadership in high-performance chips to create the Nvidia DRIVE supercomputer-on-a-chip platform, enabling cars to easily process signals from car sensors, cameras, and radar.
Today's car makers demand such features as pedestrian monitoring, GPS directions, collision warnings, voice control, lane departure, and driver wakefulness monitoring. All of that, and more, comes built right into Nvidia's DRIVE chips.
Talk about a commitment to self-driving!
Nvidia has far more employees devoted to self-driving tech than most other companies in the sector. We're talking more than 2,000 employees working on this advanced technology.
It almost goes without saying that cars equipped with Nvidia's DRIVE chip can easily tackle the standards for advanced driver assistance systems ("ADAS") and include features like adaptive cruise control that keeps track of other drivers as well as lane-keeping assistants.
No wonder the car industry is jumping on the Nvidia bandwagon. Nearly 50 car and truck makers work with Nvidia's DRIVE chips. These include upscale brands like Mercedes, Jaguar, Land Rover, and Volvo, as well as Chinese upstarts like XPeng and Warren Buffett-backed BYD.
I've been following Nvidia for a couple of decades now. Back in 2016, I noted that Wall Street had no idea how great this company was. Back then, it was primarily thought of as a play on computer gaming – Nvidia pioneered graphics processing units ("GPUs") to make video games more realistic...
But even then, the company was pushing the tech boundaries. And it hasn't stopped since. It's moved into data centers, computing for drug development, supercomputing, and AI chips.
In the most recent quarter, Nvidia beat on earnings and raised guidance for the year. Sure, overall sales fell 21%. But sales of auto and embedded chips soared 135% to a record $294 million.
Over the last three years, Nvidia has grown per-share profits ("PSP") by an average of 43%. Even if we cut that in half to be conservative, we'd still see earnings double in just about three years.
Consider adding this company to your portfolio for long-term growth. And if you're a "Pro" subscriber, I'll show you how to target the entire semiconductor sector with a single investment.
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Cheers and Good Investing,
Chief Investment Officer
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