Why I'm Finally Getting Serious About NVIDIA

Each week, I report the results of the Big Idea Portfolio, a collection of five tech stocks that I believe will crush the market over a three-year period. I've done it before; my last tussle with Mr. Market ended with my beating the index's average return by 13.35%.

Real money was on the line then as it is now, which means any one of the five stocks you see here could cause me a lot of public embarrassment. This time, Apple (NASDAQ: AAPL  ) slid more than 5%. Rallies in shares of Rackspace Hosting (NYSE: RAX  ) and salesforce.com (NYSE: CRM  ) offset most of the loss as the portfolio ended about even from last week's levels.

Is it time to make a change? After seeing its latest wares at last week's Consumer Electronics Show, I find myself interested in chipmaker NVIDIA (NASDAQ: NVDA  ) . More on that in a minute. First, let's talk about what's driving down Apple.

Chinese news sources last week reported that the Mac maker is planning lower-cost phones for emerging markets to grab market share from Android handset makers. Marketing chief Phil Schiller has denied the rumors.

"Apple has always focused on providing the best products for its consumers; we've never blindly chased market share," Schiller said in a revised story published by China's Shanghai Evening News and sourced by Reuters.

A smartphone race to the bottom in emerging economies wouldn't be good for anyone, least of all Apple. Google (NASDAQ: GOOGL  ) would do well enough over the short term since Android is a free OS. Longer term, efforts to extract profit from Nexus hardware sales would prove difficult. Everyone loses.

Meanwhile, Rackspace and Salesforce rallied again on enthusiasm for innovations enabled by cloud computing. Salesforce CEO Marc Benioff, in particular, talked up the benefits of engaging customers via social media -- and then actively leveraging that data in sales and support systems -- at CES.

What's the Big Idea this week?
As a group, my five tech stocks inched up just a percentage point this week. The comparable S&P 500 SPDR (NYSEMKT: SPY  ) did as well, after factoring in dividends and returns of capital.

Broadly speaking, techs did most of the heavy lifting. The Nasdaq rose 0.77%, while the blue chips of the Dow Jones edged up 0.39% as the S&P 500 gained 0.38%. The small-cap Russell 2000 also moved higher, but only by 0.18%, according to data supplied by The Wall Street Journal. Here's a closer look at where I stood through Friday's close:

Company Starting Price* Recent Price Total Return

Apple

$418.68**

$520.30

24.3%

Google

$650.09

$739.99

13.8%

Rackspace Hosting

$41.65

$77.83

86.9%

Riverbed Technology (NASDAQ: RVBD  )

$25.95

$19.93

(23.2%)

salesforce.com

$100.93

$173.35

71.8%

AVERAGE RETURN

--

--

34.72%

S&P 500 SPDR

$124.94**

$147.07

17.71%

DIFFERENCE

--

--

17.01%

Source: Yahoo! Finance.
* Tracking began at market close on Jan. 6, 2012.
** Adjusted for dividends and other returns of capital.

Welcome to gadget nirvana
CES dominated the tech news scene last week, and for good reason. According to the Consumer Electronics Association, the organizing body that puts on the annual gadget-fest, more than 150,000 attended this year's event, which covered 1.92 million square feet of exhibitor space. That's up from 1.86 million the year prior.

Here's a partial list of companies breaking news at the event:

  • Qualcomm (NASDAQ: QCOM  ) chief executive Dr. Paul Jacobs took the stage for Monday's opening keynote and declared the rise of a new generation that's "born mobile." He also announced new Snapdragon chips amid a spectacle that included bringing movie director Guillermo Del Toro and band Maroon 5 to the stage. The new S600 and S800 chipsets, with four processing cores and integrated graphics-rendering capability, are due this summer.
  • Which brings us to NVIDIA. Not to be outdone, the upstart chipmaker unveiled Tegra 4 at CES. A screaming-fast mobile processor -- the world's fastest, NVIDIA says -- Tegra 4 gets six times more graphics processing horsepower than its predecessor and optional LTE support, among other features. NVIDIA also showed off a portable gaming system called Project Shield and a cloud gaming service called GRID. CES named Project Shield a "Best of Show" award finalist.
  • Carmakers also got in on the geekery with upgraded navigation and voice control systems. Audi showed off an automated driving concept that could come to market by the end of the decade. Audi is also working with Google for integrating the search king's Maps and Earth apps into its navigation system while turning to Nuance Communications' (NASDAQ: NUAN  ) voice-recognition technology for dictating text messages. Nuance's Dragon Drive system for enabling voice commands in-car is coming to both Hyundai and Chrysler vehicles in the near future.

Again, I find myself most tempted by NVIDIA, which trades for a pretty reasonable 13 times forward earnings while helping to push the boundaries of what's possible with a mobile device. Would you sell any of my five stocks to get NVIDIA right now? If so, which one?

What's inside Supernova?
If you're an investor looking to profit from big ideas, you're in good company. Motley Fool co-founder David Gardner has unearthed dozens of multibagger winners by recommending and investing in revolutionary stocks before Wall Street catches on to their disruptive potential. If you're interested in how he discovers his winners, click here to get instant access to a personal tour behind David's Supernova service.


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