Nanotech's High Huckster Multiple

That makes nanotech investing something of a Wild West environment for most people. "I would say this is a risky area for an individual investor who requires a lot of due diligence," says Matthew Nordan of the nanotechnology research company Lux Research. "Among the smaller mid-cap companies, it's going to be hard to disassociate the diamonds from the rough."

Much of the impact of nanotechnology will be felt by giants like Motorola(MOT Quote), IBM and Dow Chemical, companies so large that innovations from nanotechnology won't be felt strongly in their share prices. "They take much more of a portfolio approach," says Nordan. "For them, this is another horizontal enabler along with a bunch of others that are going to improve what they do in the long term."

But for the small-caps, volatility is becoming an everyday event. On Tuesday, NVE(NVEC Quote) issued a press release announcing the issuance of a patent titled "Magnetic Field Sensor With Agumented Magnetoresistive Sensing Layer." Rarely has such technical jargon inspired so much arousal. NVE's stock rocketed as much as 21% on the announcement, with 1.7 million shares traded during the day. Not bad for a company with an $80 million market cap.

NVE makes sensors and couplers based on what it terms spintronics, which it defines as "a nanotechnology which utilizes electron spin rather than electron charge" in managing digital information. Some of its $12 million in revenue last year came from licensing its technology, but the bulk came from research contracts. In the marketplace, the jury is still out on whether NVE's spintronics will start any revolutions. Yet each approved patent triggers a trading frenzy in the stock.

At least NVE has been able to deliver profits for two years running. Another nanoplay with high turnover is Altair Nanotechnologies(ALTI Quote), which says its nanomaterials may find applications in everything from fuel cells to long-lasting batteries and from cosmetics to drug delivery. Despite those potential applications, Altair brought in $1 million in revenue last year and posted a loss of $7 million.