Chris’ note: Shares in artificial intelligence (“AI”) chipmaker Nvidia are up 210% this year. That’s almost crypto-like gains for a more than $1 trillion stock. But don’t worry if you missed out…

As you’ll hear today from our tech investing expert, Colin Tedards, it’s just the start of a much bigger AI boom.

He says gains will rival those investors made in the internet boom of the 1990s. Internet stocks soared thousands of percent.

For instance, Amazon’s stock price skyrocketed from about nine cents in 1997 to $5.35 in December 1999. That’s a 5,370% gain.

If you don’t already know Colin, he’s a tech- and growth-stock investor who blew up on YouTube for his jargon-free research into the world’s top tech stocks.

And since he came on board here at Legacy Research, he’s made it his mission to show you how the AI boom will play out… and the best ways to profit.

In 1999, business leaders around the world were asking the same question…

“Should we have a website?”

The answer seems obvious now. Of course, a business needs a website…

But in 1999, the internet was still new. And it was hard to tell.

Then, in 2007, business leaders were asking another key question…

“Should we be on social media?”

And the answer, once again, was yes.

Today, most companies use Facebook, Instagram, LinkedIn, and TikTok to engage with their customers. And the companies behind these platforms are among the largest in the world.

Now, another key tech question has arisen. And business leaders all want to know the answer.

“Should we adopt AI?”

As I’ll show you today, the answer will be another resounding yes.

Companies will use AI to bring down costs… fatten margins… and boost profits.

But it’s important to know where to invest now… and how to avoid overpriced names driven far too high by bullish traders this year.

First, let me explain a bit more about why AI is such a massive opportunity today…

Fastest-Growing App in History

By now, you’re likely aware of ChatGPT. It’s a form of generative AI.

ChatGPT is the AI chatbot from OpenAI that has read the internet and can answer just about any question you ask it – just like a human would.

It’s a massive triumph. Researchers have been tinkering with AI for more than 70 years.

One of the earliest AIs was a program that learned how to play checkers back in 1952.

Since then, AIs have translated languages… learned to drive cars and navigate roads… become the world’s best chess player… discovered new drug candidates… and guided unmanned probes to Mars.

But those were all one-off use cases. Each AI existed to solve a specific problem.

Today’s AI systems are different – and that difference will create a new wave of wealth for investors… as well as for society.

The Race Is On to Adopt AI

We can now train AI systems on giant datasets and have them perform a variety of roles.

ChatGPT, for instance, can compose songs, answer exam questions, and write computer code.

Specialized versions of it can be used as customer service agents… write marketing material… even provide live analysis on stocks and bonds.

This flexibility means AI is accessible to nearly every business in the world.

And just like in 1999 and 2007, they’re going to adopt it at scale.

The CEO of IBM, Arvind Krishna, told Bloomberg AI will replace 30% of office jobs over the next five years.

In IBM’s case, I calculated this would yield about $780 million in yearly savings. That would have boosted IBM’s 2022 profits of $1.6 billion by 48%.

That’s the kind of margin expansion most CEOs only dream of. And when margins expand, profits go up. Share prices go up. And investors get richer.

And it’s not just IBM. There’s a strong financial incentive to adopt AI across the board to boost profits.

It’s why I’m looking beyond just a few big tech stocks to play the AI boom.

Thousands of non-tech companies will soon start racing to adopt AI and make their businesses more profitable as a result.

That spells opportunity for us as investors…

Follow the 7%

Consulting firm PwC calculates that AI will add $15 trillion to the world’s GDP by 2030. That’s 16% of last year’s global GDP of $95 trillion.

Most of the value added will come from increased efficiency. Work that AIs automate will be completed faster, cheaper, and more accurately than work humans alone can do.

Already, investors are rewarding companies for just saying they’re adopting AI.

Consulting firm Accenture found that when management mentioned AI on an earnings call, the chance that its share price would rise went up 40%.

But Accenture also found that only 7% of companies were actually using AI to make more money.

For those that were, the results were impressive. Companies in that group were able to grow their revenue 50% more than their peers, on average.

For instance, a major solar panel installer uses AI on satellite images to automate planning. That shaves about 25% off its installation costs.

And Procter & Gamble is using AI to cut its time and costs to develop new products.

The company is asking an in-house AI to create a new soap formula that will save costs without sacrificing its cleaning efficiency. It can offer potential solutions that have a good chance of working. That cuts down on a usually lengthy and expensive experimentation process.

Long story short, the 7% of companies using AI to build a better business are going to outcompete the 93% that aren’t. And that 7% isn’t as obvious as it looks.

Look Beyond the Obvious Names

The biggest winner so far in the AI boom is U.S. chipmaker Nvidia.

It’s the world’s biggest supplier of the advanced semiconductors that make AI systems like ChatGPT able to process so much data so quickly.

And Nvidia shares have more than tripled in value this year. That’s the power of being an obvious name at the start of this trend.

But here’s what may surprise you. I do not recommend buying shares of Nvidia.

With a market value now north of $1 trillion, it takes a lot to move this stock.

The company must add $10 billion in market value to move the stock 1% higher. By contrast, if a stock is worth $10 billion, it only has to add $100 million in market value to have the same effect.

Another problem is that Nvidia is priced for perfection. Its shares trade for a price-to-sales ratio of 34. That means you pay $34 dollars as a shareholder for every dollar of sales the company has.

That’s 4x higher than its nearest rival, Advanced Micro Devices (AMD).

And when a stock is priced for perfection, even a small slip up can lead to shares cascading lower.

As a company, Nvidia has a bright future. But as an investment, its days of explosive growth potential are over.

Back the Nvidia Effect Instead

Fortunately, we don’t have to invest in Nvidia to benefit from its dominance.

It all comes down to something I call the “Nvidia Effect.”

When a company becomes as large and as powerful as Nvidia, every move it makes has an impact on the small companies supporting its business.

And right now, there are three small-cap stocks primed to shoot higher as the effect takes hold.

These stocks are only a small fraction of the size of Nvidia. So, the gains on offer are multiples more than what’s on offer with the chipmaking giant.

I’d like to give you more details on this Nvidia Effect as well as the three small-cap AI stocks I’m recommending right now.

To learn more, I invite you to join me on Wednesday, September 20, at 8 p.m. ET.

I’ll lay it all on the line in a one-off investing summit… And I’ll share my favorite way to profit from the AI megatrend.

You can reserve your spot with one click by going right here.

I’m looking forward to seeing you there… and showing you how you can profit.

Regards,

Colin Tedards
Editor, The Bleeding Edge