Editor’s Note from Adam O’Dell: In addition to weekly contributions here at Banyan Edge, my team also produces Money & Markets Daily — a free e-letter that uses in-depth analysis to find the next generation of breakout stocks.
Earlier this week, we published an update on one of the market’s hottest stocks … and the feedback was overwhelmingly positive. I’d like to share that update with you now. Special credit goes to Money & Markets Chief Research Analyst Matt Clark for authoring this breakdown:
On March 13, 1986, a little-known tech company based in Washington launched its initial public offering on the Nasdaq exchange.
By December 30, 1999, Microsoft Corp. (Nasdaq: MSFT) had jumped 60,393% — from a split-adjusted IPO price of $0.10 to nearly $59 per share.
Its rise started in 1990 when the company’s total annual sales eclipsed $1 billion for the first time. That followed the release of Windows 3.0, a long-term partnership with computer giant IBM and the first Office for Windows software bundle.
As a stock, Microsoft was the talk of Wall Street. It had cornered the market on computer software.
And outside of a few bumps in the road — like its $8 billion deal to buy Finnish smartphone maker Nokia — Microsoft remains a stalwart stock that has now jumped an incredible 442,721% since its IPO!
It beat out its competition like Intel Corp., Qualcomm and Cisco because it didn’t rest on its laurels … it disrupted its own software business.
Another tech company is doing the same thing in 2024, and it’s become the new talk of Wall Street.
The Rise of 3D Graphics … and AI
Noting a rise in the computer gaming industry, Jensen Huang, Chris Malachowsky and Curtis Priem had a vision.
They wanted to introduce 3D graphics to video games — games were built in 2D prior to that.
In 1993, they formed Nvidia Corp. (Nasdaq: NVDA) to accomplish that vision.
By 1999, they had created the first graphics processing unit (GPU).
These GPUs render smooth graphics at a faster rate, giving a more realistic and immersive visual experience.
Business chugged along, and, like Microsoft, Nvidia became a leader in its industry…
NVDA stock grew 73,336% from its IPO in 1999 to 2022!
During that time, developers were working on a new technology that would propel NVDA to its elite status on Wall Street today…
We’re talking about artificial intelligence (AI), of course!
Because Nvidia’s innovative GPUs can perform thousands of operations simultaneously, they are critical to neural networks, aka deep learning … a type of AI.
So, NVDA started cranking out GPUs for companies like Google and Microsoft in the race for AI disruption. But that work was behind the scenes.
Unless you had a computer engineering background, you knew little, if anything, about it.
It wasn’t until November 2022 that the hype of AI took off with the release of ChatGPT, an AI-based chatbot and virtual assistant.
That’s when Nvidia became a household name … and a stock market darling.
Since ChatGPT hit the open market, NVDA’s stock has jumped 461%! The company’s market cap has grown from $4.1 billion in 2009 to $2.3 trillion in 2024.
Now, the demand for NVDA’s chips is becoming greater than the company can handle.
During last week’s earnings call, Huang told analysts that as many as 20,000 generative AI startup companies are standing in line and waiting for NVDA’s AI chips.
At the same time, the company recorded a 262% jump in revenue year-over-year and, due to its expanding stock price, a 10-for-1 stock split.
Pro tip: A stock split occurs when the number of outstanding shares for a company is increased by dividing existing shares. Shareholders will receive 10 shares for every one they currently own. The overall value stays the same, but each share will be worth a tenth of what it is now.
For example, if you own one share of NVDA on June 7 (when the split occurs), you will own 10 shares. The overall value of the shares is the same, but each share is worth 1/10 of what it was the day before.
NVDA’s Green Zone Power Ratings Journey
You can track NVDA’s path to becoming a Wall Street darling using Adam O’Dell’s powerful Green Zone Power Ratings system.
As you probably already know, Green Zone Power Ratings give you the power to assess new investments “at a glance.”
The system combines fundamental and technical analysis to give each stock a score between 0 and 100. Stocks that score 40 or below are rated “bearish” and should be avoided. Stocks rated 60 and above are “bullish.”
These ratings change over time too, giving us some critical insights into each stock’s performance.
The chart below shows NVDA’s “ratings journey,” tracking share price performance (shown in red and measured on the left side of the chart) compared to its changing Green Zone Power Rating over time (shown in green and measured on the right side of the chart):
NVDA Now In “Bullish” Territory
When ChatGPT was released in November 2022, NVDA stock was in “Bearish” territory, with a score under 40. But once news started to spread about how its GPUs powered the AI revolution, that quickly changed.
After seven months of its share price creeping higher, NVDA turned “Bullish” with a score over 60.
The Green Zone Power Ratings system registered that NVDA was picking up momentum, and it told us the stock would beat the broader market by 2X over the next 12 months.
It’s done much, much better than that:
NVDA Did Way Better Than 2X
Since turning “Bullish,” NVDA (the blue line in the chart above) has advanced 139%, while the broader S&P 500 (the green line) is only up 26% — NVDA is beating the market by nearly 6X!
Bottom line: NVDA’s ability to disrupt its own business is similar to what we’ve seen with Microsoft … and we all know how that story is playing out.
NVDA still rates “Bullish” on our Green Zone Power Ratings system. We continue to expect the stock to outperform the broader market over the next year.
With the stock split dropping the price of NVDA’s shares, investing in this tech powerhouse will become even more attractive to investors who want in but don’t want to spend $1,000 per share.
I expect the combination of the AI revolution, increasing demand for its products and the upcoming stock split will keep pushing NVDA higher.
Until next time…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets