Some of the earliest local backers of hot technology stock Nvidia say the company’s steep rally has more to run despite shares more than doubling over the last 12 months, fuelled by a surge in demand for chips that can back artificial intelligence.
Qiao Ma, a portfolio manager at Melbourne-based Munro Partners – one early investor – said Nvidia’s rise was “nowhere close to being over”. “I have high conviction that the real impact of AI is being grossly underestimated by the market right now,” she said.
Last week, Nvidia’s quarterly earnings once again exceeded analysts’ expectations, as demand for its high-powered computer chips – used to process new artificial intelligence and machine learning technologies – continued to climb.
Shares, which have risen more than 600 per cent since the start of 2023, rallied once again following the result, helping push the Nasdaq 100 to a record close on Friday.
That rally looks set to extend when shares open in the United States overnight, with equity futures for the Nasdaq putting the tech-heavy benchmark on track to add another 40 points at the open of trading. Nvidia remains the largest holding in Munro Partner’s global growth fund, which has charted a 30 per cent return for investors in the past 12 months, due, in part, to the fund’s big bet on AI beneficiaries.
Another bite of the Apple
Ms Ma, speaking at The Australian Financial Review AI Summit, likened the stock’s already impressive performance to Apple in the lead up to the release of the new iPhone in 2007. “If you bought Apple stock the first time you got your hands on an iPhone, [the stock] would have still gone up 180 times,” she said.
“When people ask ‘who is the next Nvidia’? I go back to the Apple example … The next Apple was Apple – the next Apple, even today, is still Apple.”
Ms Ma’s comments were echoed by fellow Nvidia holder Trent Masters, portfolio manager at Alphinity Investment Management, who brushed off concerns that the rally-to-date had pushed the stock into “bubble-territory”.
“The run we’ve seen in the share prices for a lot of these big companies have been backed by earnings, and that is a whole lot more sustainable than what we saw with other speculative tech booms … this is more tangible and defendable,” he said.
“With Nvidia, even though the share price is up a lot, what you’ve seen over the last 12 to 18 months is actually a compression in the multiple – because the earnings are there to justify it.”
Mr Masters bought into Nvidia following the stock’s initial rally at the start of 2023.
“It was one of the hardest decisions I’ve had to make in the last 10 years, after seeing a stock run after a result,” he said.
“I’m normally fairly sceptical when everyone talks about the next new tech dislocation, whether it was the metaverse or crypto architecture or anything like that – but when ChatGPT emerged, you could see the use cases running off the back of it.”
Shares have more than doubled since Mr Masters bought back into the stock at $US360 last year.
Also speaking at the Summit, Loftus Peak chief investment officer Alex Pollak, another early investor in Nvidia who recently cut his fund’s exposure to the stock in half, said he was nonetheless continuing to back the AI trend more broadly.
“Since the dotcom bubble, people have been very wary about investing in tech booms … but this one’s different,” he said.
Mr Pollak said the advent of new PCs fitted with AI-enabled hardware had “opened the gates” to the next wave of potential investments. “If you walk down [Sydney’s] George Street, you’ll now see AI in the Samsung window,” he said.
“The real juice, in my view, will come as a result of the applications that run on these devices,” he said, adding that the fund was currently assessing consumer-facing products and applications for potential future investments.
Likewise, Alphinity’s Mr Masters said his fund was actively debating the impact that new AI-enabled consumer hardware in phones and tablets could have on sales for developers and retailers.
“The breakthrough in terms of the AI capabilities on the phones could get people to go out and buy more iPhones, and you could see a potential inflection in earnings come through for Apple,” Mr Masters said.
This article was originally posted by The Australian Financial Review here.
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