The Secret to Finding the Next Nvidia Is Hiding in Plain Sight

I recently wrote about how to find the next Tesla. And the answer wasn't as obvious as you might think. That's because investors often confuse results with process.

For instance, Tesla is now the largest eletric vehicle stock in the world, with ambitions that span everything from artificial intelligence (AI) to robotaxis. But these results started from humble beginning, with a strategy that had nothing to do with AI or robotaxis.

Even more profitable than finding the next Tesla is finding the next Nvidia (NASDAQ: NVDA), which just became the first $5 trillion business in history. If you want to identify the next Tesla, don't look for copycat businesses. Instead, look for companies that employ Nvidia's most successful strategy.

Microsoft perfected Nvidia's winning strategy more than 20 years ago

If you want to understand how Nvidia became a $5 trillion business, look at the history of another tech giant: Microsoft (NASDAQ: MSFT). Today, Microsoft is an AI leader. But it wasn't always that way.

Decades ago, the company's biggest product was its operating system for PCs. By owning the operating system, it was able to control much of the rest of the customer experience. It could tailor its software to support other applications like Microsoft Office and Internet Explorer.

In this way, Microsoft was able to drive adoption for other products by controlling just one piece of software. It was also able to dramatically reduce customers' ability to switch to competing products. By switching from Microsoft's operating system to a different one, for example, customers would also need to completely ditch their word processors, internet browsers, and many other core applications.

In a nutshell, Microsoft figured out how to capture an audience. But more importantly, it discovered how to keep that audience trapped within its product ecosystem.

Image source: The Motley Fool.

Today, Nvidia's GPUs dominate AI. Most estimates peg it with a 90% market share or more. Its CEO, Jensen Huang, recently reiterated that the company will soon be generating more than $500 billion in annual revenue.

Nvidia did invest early in the AI revolution, positioning its products for better efficiencies and performance metrics than the competition. Huang has said that after seeing how quickly AI technologies were advancing, he transitioned "every aspect of our company to advance this new field."

But like Microsoft, it was actually one of Nvidia's software platforms that created much of this success: a developer ecosystem called CUDA. "We need to understand how the CUDA software empire became so dominant," says tech analyst Chris Lattner. "On paper, alternatives exist...but in practice, CUDA remains the undisputed king of GPU compute."

CUDA, which stands for Compute Unified Device Architecture, is a proprietary platform that allows developers to customize Nvidia's chips for parallel computing. In this way, developers can get more out of Nvidia chips than if they simply used standardized products. This creates performance and efficiency gains that are specific to a user's application, giving Nvidia control over both the software and hardware sides of the equation.

If customers want to switch to a competing product, therefore, they would need to rewrite code and incur a bunch of other friction costs. This creates a sort of "lock in" for Nvidia's tech stack. As Lattner says: "Every new generation of Nvidia hardware brings new features and new efficiencies, but it also demands new software rewrites, new optimizations, and deeper reliance on Nvidia's stack. The future seems inevitable: a world where CUDA's grip on AI compute only tightens."

At their core, what Microsoft and Nvidia were able to achieve weren't just great products, but ecosystems that kept customers locked in to those products for years, if not decades. And the more things that are build on top of those platforms, the stronger that lock-in becomes. When looking for the next Nvidia, look closely for ecosystem plays rather than the next big product.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.