A Tailwind for Nvidia Stock
Dear reader, have you ever heard the phrase “sell shovels in a gold rush”? It’s an old investing truism that popped into my head while looking at Nvidia Corporation (NASDAQ:NVDA). Strange as it may sound, this phrase perfectly explains why I’m so bullish on Nvidia stock (NVDA).
Let me explain…
Every decade of modern capitalism has its own “Gold Rush.” There can be more than one at a time, of course. The related “Gold Rush Stocks” end up making Average Joes into overnight millionaires, so keep an eye out for these chances.
Combustion engines, personal computers, the Internet. Each of these trends gave rise to Gold Rush Stocks. Now we’re at the outset of another trend; there is another bunch of stocks set to explode. All of these stocks have one thing in common: artificial intelligence (AI).
One of them is NVDA stock…
But here’s the thing: Nvidia isn’t just any old Gold Rush Stock. It obeys the “sell shovels in a Gold Rush” motto. Instead of going after the gold itself, which is what most companies would do, this firm sells the shovels.
What This Means for NVDA Stock
The gold miners in this metaphor are (among others) Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG), and Facebook Inc (NASDAQ:FB). They are building data centers, driverless cars, and sophisticated software. Who do you think sells them the microchips to power those inventions?
Hint: it has to with NVDA stock.
Since Nvidia came of age in the video game industry, it happened to have the right technology for graphics and computation. The company invested $2.0 billion to adapt that tech for the new Gold Rush of AI, and it has paid off incredibly well. (Source: “A $2 Billion Chip to Accelerate Artificial Intelligence,” MIT Technology Review, April 5, 2016.)
No wonder NVDA stock is up 124% over the last year!
To me, the rise of artificial intelligence looks a lot like the rise of the Internet. Neither are restricted to one industry, or even to one sector. They add a new dimension to almost every conceivable business, meaning their growth potential is staggering. AI is close to its tipping point, meaning that demand for Nvidia’s microchips could surge as its clients move their productions to scale.
Think about it: Nvidia helps computers make sense of images, videos, and sound. These computers don’t need extra lines of code to account for each new image; they just blaze through them. With each new piece of data, the computer grows smarter and more intuitive about how to accomplish its task.
Let’s use self-driving cars as an example (since they’ve been in the news so often lately). Every single time an autonomous vehicle hits the road, it becomes a better driver because its data pile gets bigger and bigger. In the case of Tesla Motors Inc (NASDAQ:TSLA), its network of vehicles is like a hive mind. A “Model S” in San Francisco is learning from a car in Miami, and vice versa.
Elon Musk calls it “fleet learning” because it magnifies the intelligence of his driverless technology. It’s a wonderful idea. He deserves all the accolades and applause he gets, but investors sometimes forget about the suppliers of that tech.
The shininess of the “gold” can blind investors from the profits to be made by “selling shovels.”
Nvidia stock is a way of going long on these technology trends without choosing between the big AI players. You don’t need to bet on Facebook Inc or Microsoft Corporation (NASDAQ:MSFT); just take a closer look at NVDA stock. It is utterly irresistible.