Best Stock of 2016 (12/16)

The best S&P 500 stock of 2016 may be Nvidia (NVDA). Over the trailing 12-months, growth in gaming, cloud computing, artificial intelligence, and virtual reality have driven Nvidia (NVDA) and AMD (AMD) to gains exceeding 200% and 300%, respectively.

In fact, the entire semiconductor industry performed well as the Semiconductor 3x ETF (SOXL) gained over 125%. According to Andrew Ng, Baidu’s chief scientist, “artificial intelligence is the new electricity,” and influential VCs agree. SoftBank is preparing to deploy $50 billion, focusing on AI, and NVDA is Marc Andreessen’s top stock pick.

ETF PM currently has long positions in NVDA, AMD, SMH, and SOXL.

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The New Intel: How Nvidia Went From Powering Video Games To Revolutionizing Artificial Intelligence

Aaron Tilley, 11/30/16

Nvidia cofounder Chris Malachowsky is eating a sausage omelet and sipping burnt coffee in a Denny’s off the Berryessa overpass in San Jose. It was in this same dingy diner in April 1993 that three young electrical engineers–Malachowsky, Curtis Priem and Nvidia’s current CEO, Jen-Hsun Huang–started a company devoted to making specialized chips that would generate faster and more realistic graphics for video games. East San Jose was a rough part of town back then–the front of the restaurant was pocked with bullet holes from people shooting at parked cop cars–and no one could have guessed that the three men drinking endless cups of coffee were laying the foundation for a company that would define computing in the early 21st century in the same way that Intel did in the 1990s.

“There was no market in 1993, but we saw a wave coming,” Malachowsky says. “There’s a California surfing competition that happens in a five-month window every year. When they see some type of wave phenomenon or storm in Japan, they tell all the surfers to show up in California, because there’s going to be a wave in two days. That’s what it was. We were at the beginning.”

The wave Nvidia’s cofounders saw coming was the nascent market for so-called graphics processor units, or GPUs. These chips, typically sold as cards that video gamers plug into a PC’s motherboard, provide ultrafast 3-D graphics. Marketed under testosterone-drenched labels like “Titan X” or “GeForce GTX 1080,” these cards can cost up to $1,200, and two decades later they still produce more than half of Nvidia’s $5 billion in revenues.

But despite the surprising resilience of PC gaming (at Nvidia the segment grew 63% year-on-year in its most recent quarter, even as the broader market for PCs tanked), it’s not video games that has Wall Street salivating over the firm. It’s artificial intelligence. In a fascinating bit of silicon serendipity, it turns out that the same technology that can conjure up a gorgeous alien landscape or paint a picture-perfect explosion is also nearly optimal for the hottest area of AI: deep learning. Deep learning enables a computer to learn by itself, without programmers having to code everything by hand, and it’s leading to unparalleled levels of accuracy in areas like image and speech recognition.

Tech giants like Google, Microsoft, Facebook and Amazon are buying ever larger quantities of Nvidia’s chips for their data centers. Institutions like Massachusetts General Hospital are using Nvidia chips to spot anomalies in medical images like CT scans. Tesla recently announced it would be installing Nvidia GPUs in all of its cars to enable autonomous driving. Nvidia chips provide the horsepower underlying virtual reality headsets, like those being brought to market by Facebook and HTC.

“At no time in the history of our company have we been at the center of such large markets,” Huang says in the company’s headquarters in Santa Clara, California, where he’s clad in his trademark all-black outfit: black leather shoes, black jeans, black polo shirt and black leather jacket. “This can be attributed to the fact that we do one thing incredibly well–it’s called GPU computing.”

There are an estimated 3,000 AI startups worldwide, and many of them are building on Nvidia’s platform. They’re using Nvidia’s GPUs to put AI into apps for trading stocks, shopping online and navigating drones. There’s even an outfit called June that’s using Nvidia’s chips to make an AI-powered oven.

“We’ve been investing in a lot of startups applying deep learning to many areas, and every single one effectively comes in building on Nvidia’s platform,” says Marc Andreessen of venture capital firm Andreessen Horowitz. “It’s like when people were all building on Windows in the ’90s or all building on the iPhone in the late 2000s.

“For fun,” adds Andreessen, “our firm has an internal game of what public companies we’d invest in if we were a hedge fund. We’d put all our money into Nvidia.”

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