Here’s the intro from the latest ad from Brownstone Research:

“Tech research firm that picked NVIDIA before it soared 7,910% now reveals…

“‘The Next NVIDIA’

“Small tech company is on the cusp of unlocking a $150 billion AI breakthrough for early investors (19 billionaires are already buying shares)”

No surprise that’s generating some questions, right? Jeff Brown at Brownstone was indeed a big fan of NVIDIA, and he did peg it as his favorite pick of the year a couple times, several years ago, so there’s at least some reality to that claim — he started working in financial newsletters at some point in 2016, when he joined Bill Bonner’s publishing group and launched a couple technology-focused newsletters. Brown was also one of the more prominently marketed folks in newsletterdom during the 2018-2021 manic period for cryptocurrencies and tech stocks, but he parted ways with Brownstone and its publicly traded parent, MarketWise, a few months ago, after (no surprise) really terrible performance for his favorite kinds of stocks in 2022 and early 2023, when most tech and biotech stocks did poorly (other than NVIDIA and a few resurgent “AI” themed investments more recently, of course).

The new guy in charge at Brownstone is named Colin Tedards, who’s now also editing all the old Jeff Brown newsletters, including Near Future Report and Exponential Tech Investor… so he gets to start over and whitewash the portfolio of clobbered tech stocks, and start fresh with his own picks. We’ll find out, over time, whether that works out for him — just remember that you really shouldn’t claim the 7,910% gains of your predecessor on an NVIDIA pick, assuming Brown really did pick NVIDIA in 2016 and hold on through the ups and downs, unless you’re also going to accept the many 75% losses that his portfolios probably had last year. But, of course, cherry picking is the very soul of the marketing machine — nobody talks up their losers, no surprise. None of this is new, of course, newsletters get “reset” and editors replaced all the time, even folks who seem very high-profile and enjoyed a string of real bull market success, like Jeff Brown and Paul Mampilly (who was likewise replaced at Banyan Hill during the downturn) — everyone does poorly sometimes, and big publishers often seem to want to wash out their expensive editors and replace them with clean slates, especially because in so doing they don’t have to offer refunds to their subscribers (no matter how much they market the expertise of their pundits as a reason to subscribe, even to “lifetime” packages, every subscription is to a publication, not a person, and the publisher can change the editor whenever they want to).

We haven’t covered Colin Tedards before, I hadn’t heard of him before he was tapped to take over for Brown, so I thought I’d dig into his latest teaser pitch — he’s selling Brownstone’s entry level publication, Near Future Report ($49 first year, renews at $129), with this pitch about the next AI breakthrough… so let’s see what clues he drops, and see if we can name some names for you… here’s how he gets us interested:

“Right now, there’s a lot of hype around this new technology. And many people are chasing “hot stock” stories and overnight riches….

“Today, we’re cutting through all the noise.

“You’re going to get the truth about AI….

“You’ll see how the future of AI hinges on one tech company.

“Most folks have probably never even heard of it… But 19 Wall Street billionaires are already rushing in.”

OK, so, no surprise, what they’re teasing as the “next NVIDIA” is some kind of tech company, presumably one that sells hardware or software that will help meet the booming demand for AI processing. What other clues does Tedards drop about this pick?

Well, I’ll skip through the big-picture “AI is moving fast and changing the world and causing a gold rush” stuff — you’ve seen that before and it has already fueled a market recovery this year, led by NVIDIA… he’s not selling a new idea there. Here’s what he says when he gets down to specifics:

“Another tech company — much smaller than NVIDIA — is set to leapfrog over the tech giant.

“In fact, it’s already happening. Right here in Silicon Valley — just a few blocks from where I am right now.

“This venture is just days away from launching a breakthrough new technology.

“And when it hits…

“I believe it will trigger a wave of excitement — and profits — unlike anything we’ve seen before.”

And he repeats a story we’ve heard many times this year: That NVIDIA just can’t make chips fast enough, so there’s a shortage of the high-end GPUs that are used for AI processing… which is, of course, why NVIDIA’s earnings have exploded this year — they’ve been selling out of everything and raising prices, since customers are desperate for their product. From Tedards:

“… the crisis is only getting worse and worse…

“Not just for ChatGPT and Elon Musk…

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“But for every company involved with AI.

“Because the fact is…

“There’s not enough of these powerful chips to go around.

“And if this issue isn’t addressed quickly, it could derail the entire future of AI.”

He also implies that the big CHIPs ACT investment in US semiconductor manufacturing is to support the “AI boom,” though of course the CHIPS Act was passed over a year ago, back when everyone was expecting NVIDIA’s revenue to decline in 2023…. here’s how he spins it:

“To make sure the AI boom can go on without a hitch, the government is now pouring a whopping $280 billion into the chip industry.

“All this money is flooding into chip companies…

“But not a penny of it is going to NVIDIA.

“With an 80% market share, they own a virtual monopoly on AI hardware.

“But not for much longer.

“Even Elon Musk is now saying the days of NVIDIA’s dominance are numbered.”

So the world needs more AI chips, and what Tedards is selling as the “next NVIDIA” is apparently a direct competitor trying to close the gap between GPU demand and NVIDIA’s supply… from the ad:

“There are two ways out of this mess…

“One, the world desperately needs another NVIDIA — immediately.

“Or two, the tech industry MUST develop more powerful chips so we don’t need as many.

“And that’s exactly why we’re here today.

“As we speak, another company is stepping up in a big way.

“A firm much smaller than NVIDIA will officially launch the most powerful AI chip in history.

“Armed with a technology 100,000 times smaller than a grain of sand…

“It’s the most powerful AI chip on the market.

“And for tech companies desperate for these chips…

“This cutting-edge technology gives them the power of two of NVIDIA’s top devices — in just one chip.”

OK, so where’s this newer, better technology coming from? Who has caught up with or even passed NVIDIA after their decade-plus of GPU dominance?

Here’s what else we glean from the ad, including some big-name investors who are apparently buying this “next NVIDIA”:

“My research shows the big launch is now just days away….

“What we’re looking at is a chance to get in on the NEXT NVIDIA – weeks before the market catches on….

“Wall Street is pouring money into a company I call the next NVIDIA.

“Already, 19 billionaires have been accumulating shares of this AI chipmaker.

“You might have heard of Ken Griffin, the man behind the Citadel hedge fund.

“Last year he made a record $16 billion in stock market profits. It was all over the news.

“Griffin is now selling NVIDIA… and pouring money into this AI chipmaker.

“He just bought a whopping $1.3 billion worth of stock.

“Then there’s David Tepper, legendary hedge fund billionaire and the owner of the Carolina Panthers.

“He made a fortune in the early days of the internet.

“And right now, Tepper is going all in on this AI chipmaker. He just bought another 2 million shares.

“Wall Street legend David Einhorn is another billionaire rushing in.

“He famously bought Apple back in 1997 — when shares were trading for less than a dollar.

“And right now, I think he’s about to hit another home run…

“David Einhorn already bought 1.2 million shares of the company I call the next NVIDIA.

“All in all, a total of 19 Wall Street billionaires already own shares.”

The “just days away” is, of course, a nonspecific promise — which means it could just be thrown in there to create an artificial deadline (ads work better if there’s a deadline, no surprise — “let me wait a while and think it over” is the response the ad copywriter is hoping to avoid from you, the goal is to get you to PULL OUT YOUR CREDIT CARD NOW).

But those institutional buyers he notes above are some decent clues, so that will help us narrow it down… even though some of them are pretty wild traders, for whom one addition in a quarter doesn’t mean much (Citadel, for example, manages almost $500 billion and bought 1,245 new positions last quarter)… so, what else do we learn about this secret stock?

He quotes some other folks to back up the “better than NVIDIA” claim about their tech:

“This new chip is already making a lot of buzz in tech circles.

“Insiders are calling it a ‘game-changer’….

“Even a ‘monster device’….

“With NVIDIA’s supply completely maxed out, tech companies are desperate for powerful chips.

“And this new device is the most advanced AI tech on the planet.

“Forbes calls it ‘a tour de force of chip technology.’

“Tech magazine Semi Analysis calls it a ‘marvel of engineering.’

“It’s 2.4 times more powerful than even NVIDIA’s top technology….

“Even before the official release, tech giants have been lining up to buy this company’s technology and leverage their expertise.

“The Verge reports Microsoft just wrote a $2 billion check…

“Meta, Facebook’s parent company, is also on board…

“Then there’s Apple…

“And Google…

“Plus, they also have lucrative government contracts with the Department of Defense, the military, and even NASA.”

Any clues about the company? “Their revenue is just $5 billion” and it’s got a “3-letter ticker symbol.” And we know it’s based in Silicon Valley. That’s about it.

Answers? Thinkolator sez this is the company you probably would have guessed: Advanced Micro Devices (AMD), which is the closest thing NVIDIA has to competition in the GPU market. The breakthrough that they’re counting on is their MI300 chip for data centers, which is supposed to start production in the fourth quarter and, they hope, be widely deployed by the big cloud customers in 2024.

How do we match our clues? Well, AMD does have roughly $5 billion in revenue… per quarter, though, not per year. Both of their businesses which are to some degree in competition with NVIDIA, data centers and gaming, are roughly $5-6 billion/year businesses, though the data center sales come at much higher margins. (NVDA’s data center sales over the past year came in at $22 billion, by comparison, and gaming at about $8 billion). The divisions don’t match up perfectly, because AMD is a more diversified company, they design CPUs as well as GPUs while NVIDA is really GPU-only, so AMD essentially competes with both Intel and NVIDIA. They’ve been clobbering the former of late, but continue to lag the latter.

Microsoft has reportedly spent $2 billion to push forward their own AI chip project, Athena, but it was also reported by The Verge and, previously, by Bloomberg, that they’re “teaming up” with AMD to expand the AI processor business, in part to create more capacity for these chips and compete with NVIDIA… though Microsoft is also a big NVIDIA customer and is working with them, too.

The “19 billionaires” buying bit is probably at least a little misleading — David Einhorn may have owned AMD years ago, but he doesn’t now, and he has been openly skeptical about the AI mania, he doesn’t own any semiconductor companies as of last quarter (though he did own competitor Intel (INTC) within the past year or so). Maybe he’s mixing up David Einhorn with Dan Loeb, they sometimes get confused — Loeb’s Third Point has larger positions in both NVIDIA and Taiwan Semiconductor than it does in AMD, but he did boost the AMD position by 20%, to 1.2 million shares, last quarter (AMD is 2% of the Third Point portfolio now, NVIDIA 3%, in case you’re wondering). And yes, David Tepper did buy $2.3 million worth of AMD shares in the second quarter, too.

All of those quotes about this new breakthrough chip, though, are indeed references to a variety of MI300 chipsets that have been in the works for quite some time — those chips are indeed, AMD claims, faster and more capable than the current NVIDIA leading products like the H100, and there are plenty of references in the media to the hunger that customers have for a NVIDIA competitor… either to keep prices from going bonkers for high-end data center GPUs, or just to help satisfy the demand that NVIDIA can’t meet.

Will it work? Maybe. AMD’s financial results have disappointed lately, mostly because of their CPU business (since laptop demand has shrunk recently, and margins were tighter in that business already), but there is certainly hope that they’ll grow to take over a larger chunk of the AI processing market from NVIDIA in the next few years… and it’s certainly possible, CEO Lisa Hsu has done more from a weaker starting point than anyone else I can think of in the technology hardware business over the past decade, even if she’s not quite as high-profile as NVIDIA CEO Jensen Huang just yet.

And AMD looks cheaper than NVIDIA by most metrics, even though that’s obviously because they’re seeing their revenue and earnings shrink in 2023, not explode higher like NVIDIA’s — right now, AMD at $102 is trading at about 37X expected 2023 adjusted earnings per share of $2.76, but at only 25X 2024 estimates, and analysts expect earnings to grow from this year’s low to $4.16 next year and $5.30 in 2025. If we go back to the strong year they had in 2022, the expectation is for average growth of about 15% from 2022-2025.

NVIDIA, though, is not as expensive as it seems… at least, if you assume that they’ll maintain their pricing power and continue to see huge demand for their H100 data center chips. They’re trading at about 38X this year’s estimated earnings, too, and also at about 25X next year’s earnings estimates, with much more dramatic growth anticipated (and achieved this year, certainly). AMD was a LOT cheaper than NVIDIA a year ago, and it was more obviously easy to buy at that time, but NVIDIA, thanks to this year’s boom in earnings, is actually growing faster than AMD, and is similarly valued.

Of course, if the gold rush fades, and the demand for AI processing chips sinks next year, or competition comes in and the margins get compressed, that means the growth for NVIDIA will be weaker. But it also means AMD could easily disappoint, since their hopes for growth are coming from taking a piece of NVIDIA’s business. Given the assumptions baked into both right now, unless you assume that AMD will be taking share with MI300 in a pretty dramatic way, it’s hard to argue that AMD is a better value.

Though, to be fair, this is also the part of the semiconductor market where the least-useful analysts reside. For whatever reason, analysts have shown no talent for forecasting NVIDIA’s wildly volatile earnings over the past few years, and they’re probably going to have just as much trouble forecasting AMD. For NVDA, the stock price tends to get it right before the analysts do — the stock goes up before the analysts realize that they’re going to have blowout earnings and increase their forecasts, and it crashes before the analysts realize they’re about to have a few bad quarters of demand destruction and reduce their forecasts. I wouldn’t be surprised if we see the same dynamic with AMD as they try to finally break into the data center AI business next year, but we’ll see how it goes.

For what it’s worth, I’ve owned NVIDIA since 2017 and it’s still in my top ten holdings, and I’ve often admired but never bought AMD. I bought and held on to NVDA largely because I thought the embedded power of their CUDA software platform for AI would let them hold on to their lead in AI processing for a long time, and yet, it scares the hell out of me that they’re winning so dramatically, and trade at such a rich valuation compared to any other mega-sized semiconductor company in history. I’ve done a terrible job adding to and subtracting from my position during the big ups and downs of the past six years, though it’s still had such incredible growth over that time that I’ve made quite a bit of money by trading it badly. I’m resolved to hold on to my remaining position and see how the story plays out, at least for a little while — AMD’s report will be closely watched to see how they’re dealing with the slowdown in their CPU business next quarter and how the launch of the MI300 chips is going, that next quarterly update should be on or around November 1, and NVIDIA will report a couple weeks later, and will no doubt dominate the headlines that week, no matter the result.

It seems inevitable that all the work from competitors to build more advanced AI chips will eventually cut into NVIDIA’s market share and margins, whether the best competition comes from AMD’s efforts or the chipsets that Alphabet, Amazon, Tesla and Microsoft are also designing and producing to reduce their reliance on outside vendors, or from somebody new and exciting who catches all of our attention… but when that will happen is not even a little bit predictable. It’s hard to topple the king, and it’s hard to catch up with the advanced GPU design work that has been NVIDIA’s sole focus for 20+ years (or the embedded power of the fact that almost everyone who started an AI project in the past 15 years did so on NVIDIA hardware, and using NVIDIA software). At this rate, it’s probably true that the rising flood of AI spending will lift both AMD and NVIDIA’s revenue and earnings over the next couple quarters… but also that predicting when that spending might subside, or when margins might get squeezed, will at some point put valuations in check. Any cutback on that spending, if Alphabet or Meta or Microsoft decides to slow down the money-losing AI investments a little bit, would hurt both companies, too… particularly with the increasingly closed world where the US government is trying to restrict the sales of high-end AI chips to China, whose tech giants have been major customers for both AMD and NVIDIA.

Tedards also teases an “AI Moonshot” special report about a company you can’t buy yet…

“I recently found a private company that’s on track to become the next OpenAI.

“The company is still tiny. It has just 35 employees.

“But it already attracted the attention of major heavy hitters.

“Tech billionaires Reid Hoffman… Bill Gates… and former Google CEO Eric Schmidt are investors in this tiny tech venture.

“I wouldn’t be surprised if it grows into one of the most successful AI companies.

“Like I said, this startup is still private.

“Unless you’re a well-connected investor with deep pockets, it’s not possible to take a stake in this private firm quite yet.

“But I want to make sure you’re ready to take action if and when you can buy shares on the stock market.

“I created a special report for you with all the details.

“It’s called The AI Moonshot Watchlist.”

That’s almost certainly Anthropic, which is indeed private, not unlike OpenAI, and is developing similar generative AI technologies to OpenAI’s ChatGPT. And yes, with the “gold rush” underway all the big fellas are buying pieces of any prospective AI company, so those “heavy hitters” did all participate in Anthropic’s last funding round over the summer… though the bigger news, just last month, was that Amazon is essentially becoming the lead minority investor in Anthropic, kind of like Microsoft is with OpenAI now — Amazon is investing up to $4 billion in the company, taking a minority stake, and also winning their cloud business for Amazon Web Services. Whether Anthropic will ever go public, I don’t know, but I’d say it’s not likely that OpenAI or Anthropic will have an IPO in the near future, not when they’ve got easy access to billions in private funding and can avoid the scrutiny of the public markets, my guess is that any IPO would be years away — but never say never.

And that’s where I run out of time, dear friends — so I’ll pass it back to you. Think AMD will be the “next NVIDIA?” See great things for other chipmakers or suppliers in this grand “AI gold rush” that has everyone so excited? Think the whole thing will come crashing down sometime soon? Let us know with a comment below.

Disclosure: Of the companies mentioned above, I own shares of Amazon, Alphabet and NVIDIA. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.