Motley Fool: Dip into these chips

Nvidia is one of the world’s largest semiconductor companies. It once generated most of its revenue from gaming-focused graphics processing units (GPUs), which can also be used to mine certain cryptocurrencies. But now 89% comes from data center GPUs, which are especially well-suited for processing complex AI tasks.

Nvidia’s sales of data center GPUs surged in 2023 (fiscal 2024) after OpenAI’s launch of ChatGPT in late 2022 sparked a global artificial intelligence (AI) infrastructure race. That year Nvidia controlled about 98% of the data center GPU market. From fiscal 2025 to fiscal 2028, analysts expect the company’s revenue and earnings per share to expand at compound annual growth rates of more than 30% and 28%, respectively, as the AI market continues to expand.

But those estimates could be too conservative – since Nvidia has comfortably beat Wall Street’s top- and bottom-line expectations for many quarters. Because it’s the top seller of the picks and shovels for the AI gold rush, its revenue and profits may keep crushing analysts’ expectations.

Nvidia’s sales in China were recently throttled by U.S. export curbs, but it can easily offset that pressure with its stronger chip sales in other markets. Simply put, Nvidia has plenty of ways to keep growing. (The Motley Fool owns shares of and recommends Nvidia.)

Ask the Fool

Q. What’s the 7% rule in stocks? – T.L., Anchorage, Alaska

A. It’s a rule addressing when to sell; it says you should sell out of a stock if it dips by 7% or so below your purchase price. So if you bought shares of Old MacDonald Farms (ticker: EIEIO) at $100, and they dropped to $93, you’d sell all of them. This can happen automatically if you set a “stop-loss” order with your brokerage.

The benefit of this rule is that it can minimize your losses. If, for example, a stock begins a 30% decline – which has happened even with shares of great stocks – you’d be out of it before your investment lost any more value. Of course, no one knows exactly when a stock will go up or down, so if that stock pulled back a little before immediately beginning a big climb, you might end up missing out on much of that.

It can be good (and easier) just to hang on to shares of great companies through ups and downs, aiming to hold for many years.

Q. I’ve saved a bit of money and want to buy some stocks. What do I do first? – O.A., Broken Arrow, Oklahoma

A. Before investing, pay off any high-interest-rate debt and have an emergency fund that can pay at least several months’ worth of living expenses. Read and learn more about investing, too, perhaps with John C. Bogle’s “The Little Book of Common Sense Investing,” “The Only Investment Guide You’ll Ever Need: Revised Edition” by Andrew Tobias, or Joel Greenblatt’s “The Little Book That Still Beats the Market.” Read up on brokerages at Fool.com/money.

My dumbest investment

One of my most regrettable investing moves was believing the reports that cannabis stocks were a good investment due to the legalization of medical marijuana. Not only did the stock I invest in plummet, but it also did a reverse split – and then my brokerage charged me a $37 “reorganization” fee for a stock that had already tanked. I didn’t know that was going to happen, or I’d have sold it before it happened. So I guess that was the worst mistake I made, but thankfully the loss wasn’t more than $100. – G.T., online

The Fool responds: You’re fortunate to have lost only $100! Investing in a burgeoning industry can be a profitable move, but it doesn’t always work out. It’s important to remember that when an industry is still young, it can be hard or impossible to know which companies will end up being big winners and which ones will flame out. You might do well to spread your dollars across a bunch of companies, or perhaps better still, to wait until it’s clearer which ones are best positioned for long-term success. It’s often better to invest in companies that have proven profitability, and that have more cash than debt. And when choosing between brokerages, check their fee schedules and favor those with low fees.

Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.