In today’s issue:

  • Why Nvidia deserves its incredible share price run
  • But why it may not be able to sustain it, if history is any guide…
  • And who else we think will be the big winner in the future

Nvidia is an incredible company, with a track record of consistent, sustained success. But is it an incredible investment? Or is there something better?

Nvidia’s latest financial results were anticipated as “the most important tech earnings in years” and “one of the most important events on the macro calendar”, with market reactions “that rival the sort of moves taking place after a surprise US jobs report or consumer prices index release”.

It has soared in price rapidly over the last two years, making it the largest stock in the US, which is the largest stock market in the world by market cap.

It has achieved this feat “gradually, and then all at once” to use the common phrase. To many, it seems to have come out of nowhere as a company, but it has been steadily, impressively building its business for over 25 years. The critical thing has been that it has expanded its net profit margins (orange) as it has grown. This means it’s more profitable than ever, at its largest ever size (share price, blue).

Source: Koyfin

The price chart is on a log scale, so its exponential share price growth is represented by a straight line. The linear chart looks like a hockey stick. You can see that the recent frenzy is not its first, but the really remarkable thing is that a company of such size achieving this level of business and share price growth.

Aswath Damodaran, the “Dean of Valuation”, has recently published excellent pieces and a book on investing through the corporate life cycle, but Nvidia challenges most of its otherwise perceptive analysis, by growing faster and more profitably as it matures and grows.

Jensen Huang, the CEO, has overseen a simply brilliant culture of innovation. The typical product cycle for new chips in the industry was 18 months, so he engineered the company to start building the next one after only six, using learnings from the ongoing process for the previous one. This is achieved through heavy use of simulation and other techniques borrowed from the software development industry, which many felt weren’t achievable with hardware.

This system of overlapping development cut the new product cycle by 2/3rds, with the whole company geared towards achieving this feat, and this has been simply too powerful for the competition to handle.

As one of its supplier’s CEO put it: “It’s a very unique culture. The benefit of that is transparency and speed. And I think that is one of the things that Nvidia is really, really good at. They move very, very fast, they’re very, very purposeful.”

This history and culture of successful innovation at faster rates than all competition is why people are so excited about Nvidia, and why its earnings results are level in significance with key economic data.

It is a truly great company and deserving of its perch atop the financial markets. However, the historical record of future returns for the most valuable company in the US at any given time is actually pretty poor, standing at -1.9% according to analysis by Michael Mauboussin.

So despite being a phenomenal company, perhaps it isn’t such a great investment.

The Blackwell range

The future success of the company is now firmly in the spotlight. Attention is dialled in on its next generation of chips, the Blackwell range – which are set to be bigger, faster, more efficient and more expensive. The Blackwell range will enable trillion-parameter-scale AI models.

Companies are clambering over each other to get their hands on supply, suggesting that, for now, Nvidia still has excellent pricing power and growth prospects.

Customers lining up include Amazon, Dell, Google, Meta, Microsoft, OpenAI, Oracle, and Tesla. Elon Musk, CEO of Tesla and xAI, says “there is currently nothing better than NVIDIA hardware for AI.”

However, all this fails to mention one thing: Nvidia isn’t alone.

We’ve already suggested that, despite its incredible prowess, Nvidia may not be the best investment at this point.

There are other companies in Nvidia’s ecosystem that are less well known but also growing fast.

At Southbank Growth Advantage, our private service dedicated to find the best growth companies, we have identified a British company that Nvidia perhaps relies on more than any other.

Quite simply, the Blackwell series can’t exist without it. And industry insiders can’t speak positively enough about it.

One big tech CEO recently said, “When we look today, I think the trend is that everything is moving to                 .”

Another said, “                is inevitable. It’s the future. It’s now on every major cloud provider: Amazon, Microsoft, Google, and Oracle … Welcome to the future, everyone.”

When companies look at their own tech, Bloomberg suggests, “Don’t forget to ask the most important question of your technology future: Is it on                 ?”

And one final analyst said: “Most people think about a device. Then maybe if they’re really sophisticated, they think about the chip, but they don’t think about the company that came up with the original ideas behind how that chip operates. But once you do understand what they do, it’s absolutely amazing the influence                  have.”

This company is a key enabler of more efficient chips, and gets paid every time a chip with its technology is shipped – a number which reached 30 billion in a recent year.

Clearly, Nvidia is an incredible stock market and business success.

But this lesser-known cousin is key to the whole operation, and we believe it may have an even brighter future. If Nvidia is the leader today, this company could be the leader of tomorrow.


To find out what it is, you’ll need to click here.

Until next time,

James Allen
Contributing Editor, Fortune & Freedom