Hello, Reader.
There is one trend that many investors detrimentally overlook…
Profit margins.
A profit margin is a common financial metric, expressed as a percentage, that measures how much of every dollar in revenue a company retains as profit, after covering all other expenses.
It indicates a company’s operational efficiency and profitability. Higher percentages reflect better financial health.
You can think of profit margin as answering one simple question: “For every dollar a business brings in, how much does it actually keep?”
Let’s look at chip king Nvidia Corp. (NVDA), for example.
For a company like Nvidia, profit margin is about 100% of the story. Yes, it has revenue growth, but it has been operating with massive margins in the last few years because it’s been the “it” company.
And that was when there wasn’t any competition. But now, some of Nvidia’s biggest customers are all building their own AI chips.
Nvidia used to keep 78 cents of profit on every dollar of sales. Now it’s down to 74 cents and falling fast.
So, from this point forward, will Nvidia grow its revenues? Absolutely.
But will it grow its profits? Well, that’s a coin toss, and it is an uncertain outcome because the marginal return of investment are dropping.
This makes Nvidia the perfect example of a thriving enterprise that’s generating robust revenue growth… and no profit growth.
We’re going to see that story play out across the hyperscalers, where the marginal return on investment is dropping, both because of competition and the massive cost of maintaining leadership in this unknown AI world.
So, you want to pivot away from companies like Nvidia, where margins are regressing, the costs of maintaining leadership are skyrocketing, and where the returns on investment are unknowable.
Instead, you want to look in places where the opposite is true. I’d like to dive into one such company today.
Then, I’ll share where you can find more like it…
The One Thing AI Can’t Function Without
While there is one trend that many investors overlook, there is also one component that makes everything in the AI world work. Without it, even the most powerful AI chip, including Nvidia’s, is just expensive silicon.
See, when you build an AI data center, thousands upon thousands of servers must be installed.
But here’s the kicker: Those servers are useless unless they can talk to and learn from each other. And the way they communicate is through fiber-optic cables.
New AI hyperscalers need 10X more cables than regular data centers. That’s enough fiber to circle the globe eight times – in a single facility.
To harness that growth, I’ve got a pick that fits squarely in the category of stock I love the most – overlooked and underhyped.
This company quietly built the backbone of the internet, while scores of companies boomed and busted.
And now, as AI explodes, it is a leading supplier of what every data center desperately needs. In fact, this company just announced a $6 billion deal to provide Meta Platforms Inc. (META) with fiber optic cable for the tech company’s new AI data centers through 2030.
Meta’s ambitious plans include building Hyperion, a $30 billion cloud computing site that will become one of the world’s largest.
Shares of this company surged 17% after the announcement.
High demand means customers are inking deals with the company to reserve product ahead of time to edge out competitors. Already, 80% of the AI fiber-optic cable this company makes over the next five years is spoken for.
And it is manufacturing most of it right here in America. This means virtually no tariffs and no trade restrictions for its U.S. customers.
Here’s the best part…
While Nvidia’s biggest customers are turning into competitors, nobody is trying to manufacture their own optical-fiber cables. So, AI hyperscalers are all fighting to get more cables from this company, not replace them. That’s continual, compounding reward.
I recommended this company as a “Buy” to replace Nvidia’s “Sell” in July 2025. Since then, the company’s share price has grown 9X more than Nvidia’s.
But that’s not the only “Buy” and “Sell” pair I’ve identified…
Sell This, Buy That
In addition to selling Nvidia and buying an AI alternative, I also recommend replacement “Buys” for other three other household names that I believe are strong “Sells”…
This trio of companies has significant headwinds that could drag down your portfolio.Their counterparts, on the other hand are under-the-radar, early opportunities that can help you protect and multiply your money during make-or-break markets.
It is worth noting that two of my three recommended “Sells” are a part of the Magnificent Seven, that glittering group of high-performing technology stocks.
Although I don’t expect the members of this group to go bankrupt, I do believe that they will have a suboptimal return on investment. I will dive deeper into this topic in your next Smart Money.
Until then, be sure to check out my “Sell This, Buy That” broadcast today.
Regards,
Eric Fry
