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Growth Team Weekly Investment Insights
1) NVIDIA Delivers Again
Fueled by its H100 chip, which has become the industry standard for AI development, NVIDIAs’ earnings have risen more than 700% from a year ago. Looking at the trend in FactSet consensus estimates, analysts were expecting 2024 EPS of just $6 at the beginning of 2023. Fast forward to today and analyst are expecting $25.
Source: FactSet, as of 2/23/2024
Big Tech companies account for nearly 40% of Nvidia revenues, but its customer base has become more diversified. CEO Jensen Huang said industries including automotive, financial services and healthcare were now spending on its chips “at a multibillion-dollar level.” He added governments including Japan, Canada and France were becoming larger Nvidia customers as they harness citizen data to create their own AI models.
Shares rallied on the news, and Nvidia’s has leapfrogged Amazon and Alphabet to become the third-most valuable US-listed company behind Microsoft and Apple.
Source: FactSet, as of 2/23/2024
Given their growing importance in the global economy, semiconductors have been heralded as the oil of the 21st century. After this recent move, Nvidia is now worth more than the entire S&P 500® Index’s energy sector.
Source: FactSet, as of 2/23/2024
2) The ARM Versus Softbank Dislocation
Nvidia is not the only semiconductor company benefiting from the AI boom. Another example is Arm Holdings. Shares exploded higher after reporting better-than-expected earnings results earlier in February.
Interestingly, only 10% of the company’s shares trade because SoftBank owns 90% of the company. After this recent rally, SoftBank’s stake in Arm is worth significantly more than the company itself.
Source: FactSet, as of 2/23/2024
3) Market Marches on Despite Elevated Valuations
Last week continued a broader US market rally in February, despite seemingly elevated valuations. FactSet recently published a note highlighting S&P 500 ® Index valuations. At a forward 12-month P/E of 20X, the index is above its 5-year (18.9), 10-year (17.7), 15-year (16.1), 20-year (15.6) and 25-year (16.4) averages. In fact, prior to January 29, the last time the ratio had been above 20 was February 9, 2022 (20.2).
Source: FactSet, as of 2/12/2024
Some of this can be explained by the different makeup of the index since it is more technology-heavy relative to history. However, eight sectors have forward 12-month P/E ratios that exceeded their 25-year averages (including technology).
Source: FactSet, as of 2/12/2024
4) Replace or Repair?
The Financial Times published an article last week highlighting an issue facing the renewable energy push in Europe. Europe’s installed base of wind power infrastructure is ageing, and a crucial part of Europe’s energy future is a question of what to do with its oldest turbines? Highlights include:
5) Rising German Investment in the US
This Financial Times article highlights an example of rising investment here in the United Statels as supply chains shift. German companies announced a record $15.7bn of capital commitments in US projects last year, up from $8.2bn a year earlier, dwarfing the $5.9bn pledged in China.
German companies announced 185 capital projects in the US in 2023, of which 73 were in the manufacturing sector. Senior executives at BASF and Siemens Energy — two of Germany’s largest companies — said a combination of pragmatic US government industrial policies, a strong long-term market outlook and increasing focus on supply chains was driving US investment.
Artisan Growth Team manages portfolios which held securities issued by Amazon, Alphabet and Microsoft as of 12/31/23. Portfolio securities are subject to change.
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