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.
Despite looming tech fears, some say sky’s the limit for Nvidia
Nvidia shares surpassed US$500 for the first time last week on higher-than-expected earnings from sales of its artificial intelligence (AI)-powering computer chips. Analysts think it could make more gains given the company’s huge market share, even as rising bond yields darken the outlook for technology shares.
Nvidia, which designs computer chips known as graphic processing units (GPUs) for gaming and data centres, is the world’s largest producer of the high-tech chips needed to power complex AI functions. It posted $13.5 billion in sales in the second quarter of 2023, easily outpacing analysts’ estimates of $11.2 billion.
Revenue in Nvidia’s data centre unit was $10.32 billion, up 171 per cent year-on-year and far exceeding analysts’ expectations of $8 billion. “Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” Nvidia CEO Jensen Huang said in announcing the results.
‘Still coming up with the goods’
Shares of Nvidia hit an all-time high of $502 on the strong result, following major gains over the year since ChatGPT went mainstream in late 2022. At least 19 brokerages have raised their target price on Nvidia in August, pushing the median view to $500; shares have almost tripled in value so far this year.
However, those estimates could be conservative. Technology analyst Peter Cohen has said Nvidia shares could strike $1,000 for two reasons: Nvidia targets a large, fast-growing industry, and its competitive advantages suggest it will continue to be the market leader.
Shane Langham, senior private wealth adviser at Phillip Capital, also believes Nvidia is set for more gains. While the share price has gained around 364 per cent since the October 2022 bottom of $108.13, it saw even bigger rises in 2020 and 2021.
“From the COVID plunge bottom of US$45.17, Nvidia ran all the way up to US$346.47 in November 2021, which was a gain of 667 per cent,” Langham says. “This goes to show that on a percentage-gain basis, Nvidia is currently up just over half of what it gained the previous time.
“There is no reason why it can’t keep pushing a little more as it is still coming up with the goods and the chart is still strong,” he adds. “The other US tech giants don’t look to be as strong at this time.”
Nvidia has seen the highest increase in popularity among US hedge funds in the second quarter, a report from Goldman Sachs shows, closely followed by fellow computer chip producer Broadcom, which has also rallied this year on an expected boost from AI demand.
Chip makers have become popular investments as investors chase the AI boom. Goldman Sachs’ analysis reveals long portfolio weights in semiconductors and the largest tech stocks each registered record highs at the start of the third quarter.
Nvidia’s market capitalisation also jumped over the last 10 months, to close to $1.2 trillion from $300 billion, making it the top-returning stock in the S&P 500. It’s now the fifth largest company in the US, having overtaken Tesla and Berkshire Hathaway this year and Meta last year.
Recession fears threaten tech outlook
However, denting the run of other computer chip companies and technology shares more generally has been sharply higher US bond yields. Strong US economic data is supporting economic growth and keeping interest rates high, pushing up bond yields.
“Rising bond yields threaten the outlook for equities because a higher yield on a ‘safe’ bond means that equities look more expensive or less attractive,” says Diana Mousina, deputy chief economist at AMP.
“While we still have a positive outlook for equities on a six- to 12-month view, the recent uplift in bond yields could keep downward pressure on equities, especially for US stocks which have had a strong rally over 2023,” she adds.
“Bond yields could rise further if the US fiscal situation deteriorated further, beyond a short-lived government shutdown, or if inflation rebounded again. This is a risk, but high recession risks for 2024 should keep a lid on bond yields.”
