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Did Alphabet Just Invest in "the Next NVIDIA"?

Steve Symington, The Motley Fool

Though shares of NVIDIA (NASDAQ: NVDA) have plunged nearly 40% from their all-time high set last September -- hurt in part by a lull in demand for its popular graphics chips during the holidays -- there's no denying the tech giant's dominant industry position, innovative spirit, and enviable prospects for growth.

With a market capitalization of nearly $112 billion as of this writing, that's not to mention the fact NVIDIA stock is still up nearly 900% over the past five years alone. If you look back even further, shareholders who bought NVIDIA about 10 years ago have seen the value of their investment skyrocket more than 1,800%.

Of course, we'd all love to find the next NVIDIA. As it turns out, the folks at Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) think they may have done exactly that.

Man in suit with city in the background looking through binoculars

Image source: Getty Images.

A brighter future for computing

A few weeks ago, one of the investment arms of Alphabet, GV (formerly known as Google Ventures) led a $22 million Series A-1 funding round for a small start-up called Lightmatter.

Just as its name implies, Lightmatter specializes in using integrated photonics components to create faster, more efficient processors.

Put another way, these processors use light instead of traditional electrical signals to do their work. And the resulting performance boost could positively disrupt the computing industry as we know it, especially as it pertains to accelerating the capabilities of artificial intelligence (AI).

According to Lightmatter co-founder and CEO Nick Harris in a recent interview with CNBC, the company aims to make its chips compatible with widely used AI software like Google's TensorFlow.

"There's a lot of effort that goes into making this kind of device plug-and-play and making it look a lot like the experience of an NVIDIA GPU," Harris explained. "Our systems will be capable of greater than 10x [the performance of] existing solutions."

"I want this company to succeed and stand alone..."

With that potential disruption and mind-boggling speed, it's easy to see how Lightmatter caught the attention of Alphabet. And the NVIDIA comparison certainly wasn't lost on GV.

"I want this company to succeed and stand alone as the next Intel or NVIDIA," stated GV general partner Tyson Clark, "and I will use whatever relationships I have anywhere to do that."

In a nod to Alphabet's notoriously long-term mind-set, Clark added that GV has "more patient capital than do other typical [venture capitalists]." But that also doesn't mean Lightmatter is taking its sweet time coming to market.

"This is definitely not a longer-term, five- to 10-years thing -- this is coming soon," Harris said. 

To be fair, for a company that generated operating income of $9.7 billion last quarter alone, that $22 million investment is hardly a blip on Alphabet's radar today. But if Lightmatter can truly stand alone as "the next NVIDIA" in the coming years, GV's decision to provide early funding could prove to be a stunningly profitable move.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Steve Symington owns shares of Nvidia. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Nvidia. The Motley Fool has a disclosure policy.