[Beginning of Cramer's verbatim comments for this segment...]

Jim:          As an investor, there are few things that bug me more than finding a great new trend, and then realizing I can't profit from it. Now that is how I used to feel about netbooks... the relatively new category of ultrasmall, ultralight, ultracheap laptops.

I saw these things were exploding in size... They're going to be huge... 18 million of them were sold in North America alone in 2008. 35 million are expected to be sold this year. Get this... 139 million in 2013. We've got here a massive secular growth trend... part of yes, of course, because I'm not going stop, the mobile internet tsunami... as people use netbooks as ultraportable computers to connect to the internet when they're on the go...

But I figured there was no real way to make money off it...

The netbook makers were the same as the desktop and ordinary laptop makers. The component makers were pretty much the same too. I saw the whole thing as cannibalization, a virtual tech Dahmer party... people buying more cheap computers with cheap components, instead of paying up for more expensive ones... a total losing proposition for every single company that's involved.

And I was dead wrong...

But I never would have known it if I hadn't done some homework... Here I was thinking netbooks were all "Fine Young Cannibals"... Then I listened to Best Buy (BBY)'s conference call a few weeks ago... and they told me something completely and totally different...

This is why, by the way, if you own any technology stocks, you have to follow the great retailer, Best Buy, even if you have no interest in owning it... because it's the largest retailer of pretty much every tech gizmo and gadget out there, and they've got gigantic insight we otherwise can't get about how the markets for these products are doing. Hey look, it is the market for a lot of these products.

So, what did Best Buy say on the conference call in response to some questions?...

They told us that netbooks aren't cannibalizing sales of other computers at all. They told us it's a different, brand-new and incredible growth category... something their customers are buying in addition to an ordinary laptop, and a smartphone... not instead of them.

Wendy Fritz, Best Buy Senior Vice President of Computing said on the call, "When we look at the netbook category, we view it as a companion device... so it's an additional device, not a replacement device to a notebook. So that business is generally and vastly incremental."

Then Brian Dunn, Best Buy's CEO, chimed in... putting all our notebook fears to rest, when he said, "I think the notion that people are going to choose one device... one on-ramp for connectivity... is an erroneous assumption."

Listen... I'm taking them at their word. They've never ever been dishonest in my experience with them. So I am saying that netbooks are not cannibalizing sales of more expensive computers. In fact, I am going with them and saying that it is creating an additional, incremental world. It's an entirely new product in a category that's growing like crazy.

And that means we've got to find a way to make money...

And, just like that, I realized that, if I were running Best Buy's conference call, I would be saying... are you ready, skee-daddy?...

Buy... NVIDIA Corporation (NVDA), the best way to play the netbook explosion... That's right, NVDA! The big graphics chip company, second only to Intel in the graphics processor business. Although, when it comes to graphics processors on a dedicated video card... the more expensive kind... NVidia is in a duopoly with AMD, and AMD just passed it to become the largest player... although NVidia is now working on getting that share back.

Now, on Mad Money, we clearly don't like real competition. It's only good for the consumer. We want a slap-happy duopoly. But every once in a while, there's an actual market share battle... and sadly, we've got one here. Not good news for shareholders, because we would prefer - if it weren't a violation of every single anti-trust law - that NVidia and AMD get in a room and fix price. Wrong...

Still, NVidia has also got a mobile internet kicker. I think it's the smartest and best way to play the netbook trend... and I never would have known it, and would still probably be negative on the stock, and telling you to buy AMD for the graphics card business, if I hadn't done the homework... a derivative, special homework, by listening to Best Buy's conference call, and realizing there was room for both.

Why NVidia?...

First of all, the company understands the netbook opportunity. At a recent Deutsche Bank conference, the company talked about how "there's more and more people proving that they want to be able to take their computer with them. We know that the category and desire is that people want to be able to have a high-definition internet experience anywhere they want, all the time."

NVidia has a line of complex graphic processors... the Ion, for netbooks... just for netbooks. It's gaining significant traction. The company expects to release more than 50 Ion-based products during 2009... a lot of product cycles here... and, so far, a lot of Ion sales are tracking ahead of expectations, courtesy of some major design wins, with several of the leading PC makers.

Now here's what's really important... and this is what decided me to do this segment...

NVidia is the netbook chip provider for HPQ, and Hewlett-Packard is the single-best account you could possibly have in the world. Yes, this is the graphics play for netbooks.

What about the rest of the business?...

I've liked AMD over NVidia because it was taking share in the graphics processor business. But NVidia looks like it's recovering, thanks largely to strong demand for all graphics processors... a rising tide... Total shipments for these chips were up... get this... 31% from the first quarter to the second quarter. I don't have any other industry where we're getting that kind of growth, so there's definitely enough room for everyone.

Inventories for graphics chips are at record lows. Remember what I said... when you have record lows, that means you have pricing power. And why do they have record lows?... There was a solid back-to-school season not written about in conventional papers. Intel has said that PC unit sales will really start to grow again. That's going to benefit companies like NVidia.

Well, the company should also be poised to start to make a lot of other great other businesses, right. They're going to take back share... and why are they going to take back share? They're going to take back share because, everytime they release a new product, they are actually going to be lower priced, and faster...

Smaller 40 nanometer chips... developing its own technology for chips... they eat up... and this is really important... less battery life. Remember, you're on the go with this. Plus, as businesses start spending again, NVidia's high-performance work station chip business, that makes up 15% of sales, I think will improve dramatically. Very important, given that this is a profitable business... 60-70% gross margins... higher than Intel.

No, I'm not abandoning AMD here, even though we've caught a triple in that speculative name. But we really have to get behind this competitor and do it right now... And, with two big operating systems coming out... Windows 7 and Apple's Snow Leopard... Snow Leopard, hot as a pistol... there should be a big upgrade cycle coming in consumer PCs, which means more sales of NVidia's graphics processors.

The mobile internet kicker... NVidia has a line of chips called the "Tegra" for portable devices like smartphones, navigation devices, PDAs, handheld media players... just starting to ramp. These chips are in the Microsoft Zune... I know, not everybody's favorite... but 50 other devices, given NVidia even more mobile internet exposure.

Here's the bottom line on NVidia...

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Bottom Line:     Netbooks are huge. It's the fastest-growing category. They don't cannibalize smartphones or netbooks, so NVIDIA Corporation (NVDA) is the smartest way to play them. But don't forget... the netbook phenomena is just another aspect of the mobile internet tsunami, which is bringing up all of these strong companies that I talk about endlessly. It's the netbook angle that makes NVidia more attractive than I thought. And I wouldn't know about it if I hadn't been listening to Best Buy (BBY)'s conference call. Thank heavens for homework.
 

 

[verbatim recap]

[end of segment]

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