Editor's note: Everyone wants to know how to spot the next moonshot investment. And according to our colleague Whitney Tilson, the best investments of recent decades had one key trait in common. In this article, which we last published in DailyWealth in August 2022, Whitney shares how he discovered these investments before they soared – and why we're seeing similar opportunities today...

Longtime readers of my work know the story of how I discovered Amazon (AMZN) before it became the $2 trillion behemoth it is today...

I used a similar approach to buy Apple (AAPL) in 2000, Microsoft (MSFT) in 2010, and Netflix (NFLX) in 2012.

These investments helped me grow my hedge fund from $1 million in assets in 1999 to more than $200 million at its peak.

Today, I'll show you exactly how I spotted two of these future moonshots before they became the mega-cap blue chips we know them as today.

You see, companies like Apple and Netflix share one common trait: They're extremely "hyperscalable"...

Hyperscalers Leverage Their Loyal Customer Base

Let's look at Apple first. By the time I bought shares at a split-adjusted $0.35 per share, legendary founder and CEO Steve Jobs had returned to the struggling company, which had recently launched its iMac desktop computer. This was years before iPods, iPads, iPhones, AirPods, and the App Store ever existed.

But at the time, I knew Apple was special for a number of reasons:

• It had (and continues to have) a base of fiercely loyal users.

• At the time, 50 million homes in the U.S. (not to mention hundreds of millions of homes overseas) didn't have a personal computer. This played into Apple's strengths of creating products that were easy to set up and user-friendly.

• Apple had a long history of developing stylish, innovative products that differentiated it from its competitors and allowed it to charge a premium price.

• The company's balance sheet was pristine, with a huge cash hoard, little debt, and a "light" business model with low inventories and capital expenditures.

Overall, Apple is the prime example of the "network effect" at work: The value of its products and services increases as more people use them.

Think about the App Store. Rather than hiring hundreds of thousands of developers to create apps, Apple incentivized outside developers to create apps for its users – growing its ecosystem exponentially.

The more users there are to download apps, the more developers want to create apps for those users, and so forth. That's why Apple's App Store revenues have ballooned from $39 billion in 2017 to around $92 billion last year.

That's what I mean when I say these companies are hyperscalable.

A Hyperscalable Model Sparks Revenue Growth

Netflix took its own path to stardom...

Around the turn of the century, it had just 400,000 subscribers. Today, that number has exploded to nearly 302 million... a staggering 75,558% increase. Take a look...

In the process, Netflix put Blockbuster Video out of business entirely. But Netflix didn't take a smooth ride up.

In an ill-fated strategy, the company separated out its DVD-by-mail business from its streaming business and gave it a new name – Qwikster – forcing people to subscribe to it separately.

Netflix customers revolted... The company lost 800,000 subscribers in that quarter alone. And in less than a month, then-CEO Reed Hastings walked back the decision.

But the damage was done. Netflix went from growing 30% year over year to just above 10% for three quarters. Its stock price fell from $43 per share to less than $10 per share.

I was famously short Netflix at the time. I even published an article titled "Why We're Short Netflix"...

That prompted Hastings to publish an article of his own, titled "Whitney Tilson: Cover Your Short Position. Now."

He and I connected through e-mail, and he invited me to brunch at his house in California. There, he helped me realize I was looking at Netflix with a completely wrong lens...

I was looking at how many people were paying $8 per month and trying to figure out how much each subscriber was worth. Instead, Hastings explained that Netflix's streaming platform was already built... and it was now enjoying the network effect as more and more people were using it.

Because Netflix paid a fixed amount for its content, it cost the company virtually nothing to add a new subscriber. Each new subscription was almost pure profit.

I immediately closed my short and, after the stock fell sharply, backed up the truck on Netflix shares. I went on CNBC the exact day Netflix bottomed following its stock's crash in 2011 and predicted it would be the coming decade's Amazon, whose shares were up 1,000% over the prior decade.

It turns out I was far too conservative... NFLX shares rose 90-fold over the next nine years.

Now, take a look at the following chart...

As you can see, this hyperscalable model has led to massive revenue growth for both companies over the past several years...

This has, in turn, led to massive returns for shareholders over the same period...

I talk to people all the time who kick themselves for not investing in Apple and Netflix...

Everyone wishes they had the opportunity to invest in these stocks back then. But I believe that right now, investors have a similar opportunity...

People who get into the right stocks today will look back at this year's sell-off as one of the best things that ever happened to their portfolio.

Good investing,

Whitney Tilson

Editor's note: In a year that has seen the worst sell-off since 2020, a new AI "super chip" could soon transform the AI sector... and create millionaires out of those with the courage to buy now. That's why Whitney is stepping forward with another legendary investor to issue a major new prediction – and offer you the chance to buy in to a class of AI companies that could soar this year. You can't afford to ignore what's coming next. Click here to learn more.