Nvidia Soars On AI Hopes
In September 2020, Zurich Life widened availability of its Indexed TopTech 100 fund from pensions to the company’s other savings and investment products. At the time the fund had delivered year to date appreciation of 18.5%, and a one-year precharges gain of 31.0%.
After the announcement,
Business Plus commented: “A year ago it might have seemed that US tech stocks couldn’t possibly go any higher. But they did. It turns out that American private investors and hedge funds are convinced that tech is a one-way bet, and so far the gamble is paying off.”
The fund’s upward momentum continued until the end of 2021, and rising interest rates in 2022 turned the performance graph downwards. However, with AI bursting onto the scene with ChatGPT in 2023, it was onwards and upwards for TopTech 100, which currently has a fund size of €320m. Annualised pre-charges performance to the end of January 2024 was 43.5%, and the annualised gain on a three-year view is 14.1%, before charges.
The Indexed TopTech 100 Fund invests in the Invesco QQQ exchange traded fund. Assets are made up of 50% information technology, 21% consumer goods, and 15% communication services. Nvidia is one of the top holdings, and the chip maker has been on an absolute tear over the past year, with the share price going from $230 in March 2023 to the $860 level
recently. The reason is that Nvidia’s chips, supporting architecture, and acceleration libraries, are best suited to processing the vast amounts of data that artificial intelligence depends on.
More broadly, according to ChatGPT itself, the strong share price “reflects strong financial performance, innovation and product development, market expansion, strategic partnerships and acquisitions, overall market sentiment, future growth potential, and competitive positioning”. All these factors are relevant to most high-performance shares too, underlining that beneath the veneer ChatGPT’s output can be as bland as a management consultant.
ChatGPT might have thrown ‘price gouging’ into its Nvidia analysis. In the year to January 2024, Nvidia’s turnover increased by 126% to $61bn, and gross margin expanded to 73% from 60%. As a result net profit improved by a factor of seven to $30bn. With a current stock market p/e multiple of 70, investors expect profit to roar ahead this year too.
At New Ireland, chief investment strategist Kevin Quinn observes that in January 2024 Nvidia was by a distance the strongest performer in the S&P 500, accounting for 25% of the gains made in the overall market in the month. Through January, performance was highly concentrated, with just five companies generating over twothirds of the returns.
Quinn cautions that Q4 2023 earnings results from the six other companies among the Magnificent 7 have been met with a shrug by markets. “It appears the seven are going to have to produce outstanding corporate results to maintain, let alone grow, at the pace we’ve seen in the past 12 months.”
Quinn suggests that Nvidia’s strong returns may continue, in the manner in which Cisco outperformed in the late 1990s, and including against its peers within the Magnificent 7. “While there remains good cause for its outperformance, by any standards the scale is high and cannot persist indefinitely,” he adds.
The blue-sky view from Nvidia founder and CEO Jensen Huang is that generative AI has created a sense of urgency in companies everywhere to reimagine their products and business models. “The largest industries, from auto manufacturing to pharmaceutical, will be reinvented with generative AI and become some of the most advanced technology industries,” he predicts.