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NVIDIA Could Be Worst A.I. Play To Make Today
You may not want to hear this.
But it could be the single most important message that ensures you get your piece of the A.I. boom.
And it starts with NVIDIA (NVDA).
NVIDIA has emerged as the major breakout star in A.I. stocks.
The company’s most advanced microchips have become essential building blocks in A.I.’s massive data processing centers.
Orders for these chips are far outpacing supply.
And there’s little signs of demand waning anytime soon.
NVIDIA shares have soared right along with demand as its chips.
Its shares are leading the rebound from the October 2022 market lows. They’re up 266% since then and still setting new highs.
The further back you go, the better NVIDIA looks too. Its shares are up more than 10,000% over the last decade.
The run has propelled NVIDIA’s market value to more than $1 trillion – more than Tesla and Berkshire Hathaway.
Despite it all though, NVIDIA could be the worst ways to play the A.I.
As a chipmaker, NVIDIA is part of the infrastructure of A.I.
And, we’ve seen dot-com bubble, it’s not the technology infrastructure companies that emerge as the fortune-making superstars, but the companies that can harness and apply the new tech.
Here’s some examples.
Corning Inc (GLW) was a major fiber optic cable maker during the dot-com bubble.
It was one of a handful companies that were facing multi-year backlogs for fiber optic cable.
And when dot-com stocks got hot, Corning caught fire.
Over the long run though, fiber optic supply caught up with demand and the business tapered off as the Internet infrastructure was built out.
As a result, Corning’s shares are still down more than 60% from their 2000 peak price.
Corning, as a provider of Internet infrastructure, just wasn’t a great long-term play.
And it wasn’t alone either.
Cisco Systems (CSCO) was another dot-com boomer and played an essential role in the buildout of the Internet.
The company made the switches and routers that made the Internet work.
At the height of the boom Cisco couldn’t make its products fast enough.
Cisco shares soared too.
But they didn’t turn out to be the huge long-term winner many had hoped.
It’s still in business today, but even after 20 years of growth, it’s shares are just about where they were at the height of the dot-com mania:
This chart tells the story.
More than 20 years and essentially no returns.
The theme here is critical for A.I. investors.
That’s because hardware companies can be big winners in the early stages of the Internet boom, but they weren’t the long-term winners.
The companies that made fortunes for investors from the Internet were those that were able to harness the power of the Internet to build products, software, and services.
Microsoft (MSFT) is a great example.
Today Windows operating systems installed in PC’s makes up just 12% of the company’s sales.
This year cloud computing services – a business that didn’t exist before the Internet -- will be more than double the size of the Windows segment for Microsoft.
Also, cloud computing is still the fastest growing segment for the company too.
Microsoft wasn’t big into infrastructure and hardware, instead it focused on businesses that capitalized on connectivity.
As a result, it’s grown into a $2 trillion giant.
All of today’s largest companies followed a similar path.
Google, Meta, Amazon, etc. all left the hardware and infrastructure companies in the dust over the long run.
The same is set to happen with A.I. too.
The real excitement and growth potential in A.I. is in applications that save money, drive productivity, and unlock new technologies.
All that means NVIDIA – a $1 trillion company with $26 billion in sales – might not be anywhere close to the best A.I. investments to make today.