Nvidia Just Fell Behind This Aerospace Name

For much of the past two years, there’s been one name on nearly every investor’s lips… Nvidia.

So much so, that I believe at Tipping Point Profits we’ve covered the chip maker more than any other.

Of course, there are more reasons for that than there are pieces of trash in the Apex Regional Landfill.

At the top though is - Nvidia is a millionaire maker.

Shares have gained 118.6% year-to-date. (Even after their recent burps and tumbles.)

That’s 9.4 times better than the Nasdaq 100 and 7.4 times better than the S&P 500!

 And over the past two years, the semiconductor giant’s shares have surged roughly 700%.

That means a $10,000 investment at the beginning of September 2022 would be worth more than $80,000 today.

And you didn’t have to do anything… except chant and clap, “AI! AI! AI! AI!” a la Mama Klump in The Nutty Professor.

But there’s another rapid riser most investors have missed.

A name that over the past year has returned more than the AI King. Yet even now, one share costs a fraction of what a share of Nvidia would set you back.

 And best of all, it isn’t some fly-by-night penny stock that’s going to be bankrupt in a year or two! It’s a company that’s been around for more than a century… and every single one of us knows its name.

A Record Drowned Out by Motor City

There are brands that come to mind when we think of luxury...

Gucci.

Louis Vuitton.

Chanel.

Hermes.

Cartier.

Bentley.

Ferrari (RACE)…

But if you’re of a certain age, there’s probably one that stands out as the peak of opulence: Rolls-Royce (RYCEY).

Images of these bespoke cars gliding across city asphalt and country cottage drives as if on a cloud were the epitome of affluence for me as a kid. And they still are.

The Silver Wraith, the Silver Cloud and Silver Shadow were later replaced by the Phantom, the Wraith and the Dawn.

And the Wraith and Dawn have been shelved in lieu of Rolls-Royce’s new all-electric Spectre.

If you want people to know you have money… Like, the “I-could-have-you-killed-and-get-away-with-it” kind of money, you own a Rolls-Royce.

I mean, a Phantom will set you back half a million. For the same price, you could buy a Bentley Bentayga and a Continental GT with enough left over to max out this year’s 401(k) contribution.

Or you could buy a house. A normal person’s house. Not the house of someone who buys a Rolls-Royce.

So, due to their staggering price tags, the 119-year-old company doesn’t have vehicles flying off the line. In fact, in 2023, Rolls-Royce produced a record 6,032 cars. That’s right, the biggest production year in the company’s history and it barely topped 6,000 vehicles.

For comparison, Ford (F) slapped together 1,995,912 vehicles last year. And that wasn’t even a record for the Detroit powerhouse.

But it’s not cars that have sent shares of Rolls-Royce surging nearly 600% over the past two years. And the limited demand for its cars is not why it employs more than 41,000 people.

The real luxury item it produces is engines.

And business is taking off…

Powering the Land, Seas and Skies

Investors looking for growth, security and some diversification away from AI (at least partially), Rolls-Royce offers plenty of upside.

Though, not in the ways most might think.

In the first six months of 2024, more than 50% of the company’s $10.71 billion in revenue came from its Civil Aerospace segment. This was a 27% increase over 2023. More impressive though was operating profits from this segment surged 85%!

Rolls-Royce delivered 108 Trent XWB-97 engines in the first half of the year. These are designed for Airbus (EADSY) A350s. It also delivered 83 Pearl 700 engines, specifically designed for Gulfstream G700s and G800s.

Now, in 2024, we’ve already seen a record number of air travelers in the U.S. But during the first quarter, China's international traffic grew fourfold. And here Rolls-Royce has an extraordinarily strong presence. On top of that, the Asia-Pacific region is projected to be the main driver of air passenger growth not just this year, but out to 2027.

To keep up with demand, Rolls-Royce increased capacity at manufacturing facilities in Derby in the U.K. and Dahlewitz in Germany, allowing it to deliver 40% more engines per year by 2025.

Of course, shares of Rolls-Royce slipped in Tuesday’s U.S. trading as Hong Kong’s Cathay Pacific ground 48 Airbus A350s after an engine component failure. But it was noted, “This component was the first of its type to suffer such failure on any A350 aircraft worldwide.” The grounding was erring on the side of caution.

But Rolls-Royce isn’t just in the skies… it’s in the seas.

And here, Rolls-Royce engines power everything from tugboats to yachts.

In the first half of 2024, $2.9 billion of Rolls-Royce’s revenue has come from its Defense contracts. Most notably, this includes an 84% increase in nuclear reactor demand for submarines.

In 1963, the U.K.’s first nuclear sub, the HMS Dreadnought, was powered by a Westinghouse S5W reactor supplied by the U.S. However, every sub since then has used a Rolls-Royce pressurized water reactor.

The company is also working on developing small modular reactors (SMRs). These 470-megawatt (MW) plants are smaller than a traditional 3,300 MW power station. But the cost to build an SMR is roughly 10% of that for a full-sized plant.

The U.K. hopes to start constructing these across the country in the 2030s once designs are finalized.

Finally, adding to Rolls-Royce’s diverse portfolio, its Power Systems unit tossed in another $2.4 billion in revenue so far in 2024. This is driven by double-digit growth in demand from data centers (thanks AI!) and government facilities.

Artificial intelligence and semiconductors have dominated investor mindsets for more than a year. But there are plenty of great companies, like Rolls-Royce, that are thriving as well… and their shares are outperforming those chip making champs over the past year. Plus, these companies have weathered world wars, depressions, recessions and every economic hurdle imaginable. And they’ll likely continue to do so in the future.

Rolling with Rolls,

Matthew