Nvidia (NASDAQ: NVDA) stock’s been an incredible investment in recent years. In my Self-Invested Personal Pension (SIPP), for example, it’s currently showing a gain of 795%.
Recently, I was playing around with ChatGPT and I asked it to list five growth stocks that could potentially be the next Nvidia. Here are the names it came up with.
ChatGPT’s picks
Based on current market trends, ChatGPT listed the following companies:
- AMD
- ASML
- Broadcom
- Taiwan Semiconductor Manufacturing Company
- Oracle
The first four businesses operate in the chip industry, like Nvidia, while Oracle’s in the cloud computing/data centre space.
I’m not convinced
Now, these are all brilliant companies. All five could potentially deliver strong returns in the years ahead. But are they likely to be the next Nvidia? I don’t think so.
Nvidia’s story is pretty unique. You see, CEO Jensen Huang saw the artificial intelligence (AI) boom coming long before most other chip companies did (well before ChatGPT was launched). As a result, he was able to develop market-leading products for the industry (GPUs) and capture a huge amount of market share.
When the AI market took off a few years ago, Nvidia’s sales and earnings skyrocketed. Last financial year revenue was $130bn – about 1,100% higher than the figure five years earlier.
One other thing worth noting is that if we go back a decade or so, Nvidia wasn’t a mainstream stock. As a result, its market-cap was only around $10bn (the smallest company in ChatGPT’s list is AMD with a market-cap of $420bn).
Now, ChatGPT hasn’t been able to see this and find an equivalent in another industry. It’s simply listed five growth stocks that are ‘frequently cited’ as having the potential for significant gains.
In other words, it hasn’t really done any proper research. That’s disappointing, and it highlights the risks of using AI for investment decisions.
Finding the next big thing?
If I was looking for the next Nvidia today (and I am), I’d be looking for small, less-well-known companies in emerging growth industries. Some examples here include self-driving vehicles, humanoid robots, flying taxis/drones, and nuclear power.
My focus would be on companies that develop vital technology for their industries, have strong competitive advantages (meaning competitors can’t easily replicate their products), strong management teams (ideally founder-led companies), and solid balance sheets. To my mind, these are the crucial ingredients when it comes to finding the next Nvidia.
A growth stock I’ve uncovered
One stock I’ve personally taken a punt on recently is Hesai (NASDAQ: HSAI). It’s a small Chinese company that specialises in LiDAR (remote sensing) technology and is founder-led.
I think it looks really well placed to benefit from the growth of both the self-driving vehicle and humanoid robotics industries. Already, it has loads of partnerships with businesses in these industries and has significant market share.
I’ll point out that this is probably the riskiest stock I own. The fact that it’s a Chinese business means that there are all kinds of complex geopolitical risks.
Given the risks, I expect its share price to have huge swings (like Nvidia has over the years). I’m comfortable with the risks though – I’m in it as a long-term investor.
If someone’s looking for big gains (and comfortable with risk), I think it’s worth a closer look.
