Roy Keenan from Yarra Capital Management shares insights with James Dunn from The Inside Network on the role of active management. The Inside Adviser
After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
All bets on Nvidia as AI tools gain popularity
Wall Street is betting on computer chip stocks as investors buy into the artificial intelligence (AI) revolution that OpenAI’s popular language chatbot ChatGPT has brought into the spotlight, with chip maker Nvidia one of the biggest early beneficiaries of the software’s popularity.
The company’s super-fast computer chip models dominate the market for graphics chips designed for complex computing tasks needed to power AI applications. The more people who use ChatGPT, the more computing power OpenAI needs to generate responses to the millions of queries received.
In late January, Microsoft announced it was making an investment in OpenAI, reportedly totalling US$10 billion over several years, that the company will use to ramp up computing power, likely bolstering demand for Nvidia chips. Shares of Nvidia jumped as much as 6.5 per cent on the day the deal was announced.
The company’s share price rose 55 per cent over the year to February 8, compared with around 15 per cent for the Nasdaq Compositive Index and 8 per cent for the S&P500. It is up around 100 per cent since bottoming out in mid-October last year after semiconductor and computer chip stocks were hit during the sharemarket sell-off. The industry moved into oversupply from a chip shortage as demand slowed following the pandemic-driven surge.
According to Harlan Sur, global semiconductor analyst at J.P. Morgan, Nvidia is a “leader in accelerated computing semiconductor systems, hardware and software platforms, in areas like artificial intelligence and deep learning, powering some of the world’s most powerful supercomputers and driving compute innovation for cloud and hyperscalers as well as large vertical markets like healthcare and life sciences.”
J.P. Morgan generally likes semiconductor stocks, including chip companies Advanced Micro Devices and Qualcomm. “Despite the cyclical downturn in [the second half of 2022] and 2023, multi-year outperformance remains in place for the group, and we expect this trend to continue in 2023,” Sur said.
Advanced Micro, Nvidia, Qualcomm and Broadcom Inc. are the top semiconductor picks for broker Bernstein’s in 2023. Analyst Stacy Rasgon has an outperform rating on all four companies.
“In the current environment, we would be looking for names that have cut [forecasts], and where there is a strong secular story that can play off that bottom,” Rasgon wrote in a recent note to clients. He added that Advanced Micro, Qualcomm and Nvidia have “good stories going forward,” with Advanced Micro notably taking market share away from Intel.
Local investors can get exposure to chip companies through Betashares’ Global Robotics and Artificial Intelligence ETF. The exchange-traded fund invests in a diversified basket of companies involved in robotics and automation and in artificial intelligence, with Nvidia as its top holding. Another is the VanEck Video Gaming and Esports ETF, also with a top holding in Nvidia.
Australian investors still shy
Jaxon King, senior financial adviser with Alteris Wealth, said he hasn’t had too many clients asking about semiconductor companies for investment purposes, but the area is grabbing increasing attention.
“It’s definitely a talking point, especially with the popularity of ChatGPT and Microsoft’s investment in it, but it’s similar to crypto in terms of its surge in popularity and our caution against it,” he said. “The iShares Semiconductor ETF was up 17 per cent in January.
“It’s not terribly difficult to have some exposure to any of the bigger tech stocks; the Betashares NASDAQ 100 ETF has Nvidia in its top 10 holdings. Our focus with our clients is long term, so they understand the benefit of a diversified portfolio over the long term.”
“It’s also very easy to get excited about this style of investment when it could be said we’re in a bear market rally currently and tech stocks are just coming back, as they were the worst hit last year,” King added.
Kellie Davidson, executive director of advisory firm Pitcher Partners, reported similar sentiments to King. While she said there is not yet substantial client demand, she does see an opportunity in the semiconductor area.
“Our preference at this stage of the cycle has been to use the Betashares Robotics & AI ETF partly as means, first, to get exposure to the sector; second, to recognise that it is difficult and higher risk to select individual stocks; and third, to be diversified across this sector,” Davidson said. “At this stage, we are receiving little demand from clients; a decision to invest in this sector is mostly driven by advisers who see this an opportunity.”
