Depending on whom you ask, the LightWave Energy Patch is either the first miracle of nanotechnology or just an early instance of 21st-century snake oil. Do an Internet search on the patch -- it claims to employ "nano-scale organic antennas" to give bodybuilders a jolt of energy -- and you'll find inspiring testimonials from presumably beefed-up customers and scathing denunciations from less-than-musclebound scientists.

Under its manufacturer's liberal definition of nanotechnology -- "manufactured products that are made from atoms" -- the polyester patch is undeniably a nanotech product. But so is the computer screen you're reading this on. What's less clear is whether the nanopatch delivers as advertised. But the advertisements themselves are emblematic of the growing trend in using the buzz of nanotechnology as a marketing ploy to give an otherwise unremarkable product a LightWave-like infusion of promotional energy.

( TheStreet.com is taking a look at nanotechnology this week, including the myths surrounding it and how Wall Street is attempting to get a handle on it .)

The trend, unfortunately, hasn't spared the stock market. "A lot of the people who shout the loudest about nanotechnology and who are really trying to boost it have very little understanding of the science," says Tim Harper, president of Cientifica, a research firm specializing in nanotechnology. "It's always worth asking them if they know the difference between a macrophage and a macromolecule, and in most cases, they don't."

(A macrophage, if you're wondering, is a big cell that devours dead cells and foreign material as part of the immune system. A macromolecule is a very big molecule.)

Very often, it's hard to see where the nanotech marketing by companies ends and the willing suspension of disbelief among investors begins. Simply putting the magic letters n-a-n-o in a company name or business plan is enough to invite a surge in stock trading and price volatility.

Take Nanogen ( NGEN). The company makes molecular diagnostic products using microelectronics, a promising field but one that observers say doesn't quite fit under most definitions of nanotechnology. Yet in December 2003, the stock doubled on surging volume when President Bush signed the Nanotechnology R&D Act.

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), IBM ( IBM) and Dow Chemical ( DOW), 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) 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), 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.

"Altair has had its technology out there for five or six years, and it has yet to be validated by a single top-tier industrial partner," says Nordan. "There's been no real validation in terms of commitment to ship products based on Altair's materials. What there has been is the word nanotechnology in the company name and, you know, a great deal of press-release activity."

Nevada-based Altair has been around for decades as a miner and explorer for gold. It wasn't until 2002 that it added the word "nanotechnologies" to its name. Earlier this month, investors shrugged off the abrupt resignation of its president for the last three years, Rudi Moerck -- normally a cause of concern among shareholders. But a week earlier, the stock shot up 16% on news of -- that's right -- another patent.

Diamonds in the nanotech rough are more likely to avoid calling themselves nanotech companies, even if they have a better shot at benefiting from the fruits of nanoscience. As examples of companies that could benefit, Nordan points to Cambridge Display Technology ( OLED), which makes polymer light-emitting diodes in cell phones and flat-panel displays; American Pharmaceutical Partners ( APPX), whose Abraxane drug was approved in January; and Westaim ( WEDX), which makes wound dressings.

Even with companies that are producing products based on nanotechnology, there remains the risk that the market demand for them just won't be that strong. "We're seeing again and again more technology push than market pull in nanotechnology," says Harper. "Carbon nanotubes have been around for about 15 years now, but you're still looking for that killer application. We saw this with the Internet as well: The technology got way ahead of the market pull. Too much of that overhang and you're in danger of a crash."

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