Where is the next millionaire-maker Nvidia stock?

It is very hard to spot the next big winner like Nvidia stock. But this Fool thinks there are some telltale things to look out for.

| More on:
artificial intelligence investing algorithms

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Every decade, a handful of emerging growth companies see their share prices skyrocket, making some early investors millionaires. Nvidia (NASDAQ: NVDA) stock is the most recent high-profile example.

Now, let me start by stating the obvious: it’s very difficult to predict when and where the next big winner will emerge. However, I believe there are patterns we can observe and lessons we can learn.

Here, I’ll touch upon a few of these in the hope that they will help me identify top growth stocks.

Founder-led trailblazers

The first thing to note about big winners is that they’re usually firms operating in emerging industries undergoing huge growth. Second, they’re more often than not led by founders.

We can see this pattern with some of the big tech winners emerging from each decade (with some overlap) from the 1970s onwards:

  • 1970s: Intel
  • Mega-trend: PC revolution and semiconductor boom
  • Led by founders Robert Noyce and Gordon Moore
  • 1986-1990s: Microsoft
  • Mega-trend: PC software and the rise of the Windows operating system
  • Led by founder Bill Gates
  • 1997-2010s: Amazon
  • Mega-Trend: E-commerce boom and the rise of cloud computing
  • Founder-led by Jeff Bezos

Moving into the 2010s and 2020s, we have Nvidia, whose visionary founder-CEO Jensen Huang capitalised on the massive emerging trends of artificial intelligence (AI) and accelerated computing.

There are other examples, including video-streaming pioneer Netflix (Reed Hastings) and electric vehicle trailblazer Tesla (Elon Musk led the firm’s initial round of investment funding in 2004).

A deep moat

Every successful company needs a clear competitive advantage (or moat), and Nvidia has several. One that stands out to me is the network effect it benefits from, where its products increase in value as the number of users grows.

Specifically, CUDA, its leading software development platform, allows programmers to leverage the power of its graphics processing units (GPUs) for general-purpose computing. This includes tasks in AI, machine learning, and scientific computing.

As more developers adopt CUDA, this drives more users towards Nvidia GPUs because they are optimised for CUDA. This ultimately reinforces the platform’s leading position, creating a powerful network effect.

While customers are locked into the Nvidia ecosystem today, that might change as the AI landscape evolves. New technologies could emerge that challenge the company’s dominance. This is a potential risk.

Trojan horses

Finally, it’s striking how many huge winners morphed into something else over time, driven by management’s anticipation of future trends.

For example, Netflix started as a DVD rental business before pivoting towards streaming. Amazon originally sold books online, but much of its value today is in cloud computing.

Meanwhile, Nvidia has transitioned from computer graphics cards into a world leader in AI computing.

My Foolish takeaway

Looking at my own portfolio today, I see some of these themes and patterns playing out.

Led by co-founder George Kurtz, CrowdStrike is benefitting from a cybersecurity mega-trend. The firm’s platform filters over 1trn threat data points daily, allowing it to refine its machine learning models. This is attracting more customers and data, creating a virtuous cycle.

Meanwhile, founder-led MercadoLibre, which is morphing into a fintech powerhouse outside of just e-commerce, is also benefitting from powerful network effects.

Ultimately, we don’t know where the next millionaire-maker is hiding, but I’d bet it will possess many of the features highlighted here.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in CrowdStrike, MercadoLibre, and Tesla. The Motley Fool UK has recommended Amazon, CrowdStrike, MercadoLibre, Microsoft, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How I’d aim to turn an empty ISA into £275k by purchasing cheap shares this summer

Harvey Jones is taking advantage of the summer stock market lull to buy cheap shares and build a high and…

Read more »

Investing Articles

What’s the minimum I need to invest every month to earn a meaningful passive income?

When looking to secure a stream of passive income it's important to be realistic. Our writer investigates a strategy to…

Read more »

Investing Articles

These 2 great value income stocks could help me get rich and retire in style

These two FTSE 100 income stocks have terrific track records of dividend growth and Harvey Jones wants them in his…

Read more »

Investing Articles

£3,000 of savings? Here’s how I’d use that to start buying shares this July

Our writer uses his investment experience to consider what he would do today if he wanted to start buying shares…

Read more »

Investing Articles

Would I be crazy to buy Lloyds shares at a 52-week high?

Lloyds shares are up 30% over the last 12 months. But at a P/E ratio of 8, is it too…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Dividend Shares

Would I be crazy to buy more shares in FTSE giant Unilever after a 20% rise?

FTSE powerhouse Unilever is performing really well at the moment. And Edward Sheldon's tempted to buy a few more shares…

Read more »

Investing Articles

The Rolls-Royce share price growth story in 4 simple charts

The Rolls-Royce share price has soared since the pandemic. These four charts help to explain the company's success and continued…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

History suggests the FTSE 100 may double from where it is now

The FTSE 100 overall is buoyant, but this single stock has the potential to be a better buy now its…

Read more »