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Famous Five – Riding the Bucking Broncos

March 25, 2024

The S&P index is in full bull market mode, which is the perfect backdrop for buying individual shares. The latest development is a smiley buy signal (the sixth in 90 years!) and a chart breakout. Not only do we have a great chart but the US economy is bustling along helping many companies report excellent growth and the story is amazing, accelerating technology revolution plus GenAI tipping point. The scene is set for massive continuing gains in US stocks.

So here are my Famous Five raging growth shares for the crazy Kamikaze pilots among you.

Stock No. 1 – Nvidia

My love affair with Nvidia continues unabated. If UK men were allowed five wives she would be the senior wife, the doyenne to whom all the others must kowtow. Nvidia is surely the greatest story in stock market history, the company which almost single-handedly is powering the most exciting revolution in human history, unlocking an age of unimaginable wonders.

The chart is a rocket heading into orbit. There are five smileys so far and I am sure there will be more. This company could not be better placed to benefit from and drive forward the technology revolution. Humanity needs Nvidia to be a great company and it must create an incredible working environment for its 30,000-odd employees. They are in the front line of the greatest period of advance Homo Sapiens has ever known.

What is that worth? A figure that springs out of a hat is $10 trillion, $10T. It is worth keeping that number in mind through all the ups and downs in shares generally and Nvidia particularly.

I have been listening to Jensen Huang at the GTC conference where he was the keynote speaker. As he said himself he knows what it is like to be a rock star playing in a stadium because that is what he has become, a living legend.

He sweeps me off my feet but I can’t understand a word he is talking about; that is a bizarre thing that has happened in my lifetime. The mantra used to be – never invest in a company you can’t understand. Now the best companies do stuff which is a mystery to most people.

You can find every view on Seeking Alpha. Below is a bullish view, which naturally I share.

Such an exceptional performance indicates that the demand for its chips has not peaked yet and there are reasons to believe that we could see another earnings beat in the next few quarters. This is due to the fact that the shortages for its flagship AI chips are expected to remain for a while as a result of the increased demand across the globe. What’s more is that as the sovereign nations begin to allocate capital into the AI infrastructure to build their own large-language models and become a part of the generative AI revolution, the demand for Nvidia’s chips is likely to continue to rise in the foreseeable future.

Another thing that the company has going for it is the fact that it doesn’t have any major competitor that could’ve taken a significant market share and posed a threat to Nvidia’s dominance in the field of generative AI chips. In my latest article on Advanced Micro Devices, Inc. (AMD) that was published last month, I noted that the company expects to sell only $3.5bn worth of AI chips in 2024 at lower prices than Nvidia. As such, it’s safe to say that Nvidia has no competition on the horizon. Add to all of this the fact that Nvidia revealed the world’s most powerful AI chip earlier this week and it becomes obvious that almost nothing could undermine the company’s growth story for now.

Considering all of those catalysts, it’s safe to say that Nvidia’s growth story is far from over. After the exceptional performance in FY24, the company is expected to continue to grow its top line at an impressive rate of ~80pc in FY25 while its earnings are expected to grow at an aggressive rate as well.

What’s more is that there’s always a possibility that the outlook will be improved as the year goes by, which could once again lead to upward revisions in the following months. This was already the case for a few quarters in a row, and in recent months as well when the management’s revenue outlook for Q1 of $24bn was above the Street consensus of $22.03bn.

Seeking Alpha, 20 March 2024, – Bohdan Kucheriavyi

Stock No. 2 – Super Micro Computer

I love this chart, such an explosive breakout. They don’t come better than this. Usually, I try to recommend shares at higher levels but I am breaking the rule on this one. I am impressed by the latest fundraising (2m shares at $875 a share to raise around $2bn if the additional 300,000 shares option is exercised) coming hard on the heels of a previous one. They want a lot of money in their piggy bank but I think this is because they have such ambitious expansion plans.

This company is in a whole new ball game since GenerativeAI took off and it makes sense for them to raise serious risk capital to address that opportunity. Shares often fall on fundraisings, especially when it is the second in quick succession but I think it is bullish that they want so much money. Unlike Nvidia SMCI makes stuff and they need factories so they have a significant and fast-growing capital expenditure budget.

I stick to my belief that the next figures, due at the end of April, are going to be sensational, so I remain a raging bull of this stock.

The rapid growth of our business is driving the need for additional R&D, solution optimisation, manufacturing and service capacity. Today, our production utilisation rate is about 65pc across our USA, Netherlands and Taiwan facilities, and they are quickly filling. To address this immediate capacity challenge, we are adding two new production facilities and warehouses near our Silicon Valley headquarter, which will be operating in a few months. The new Malaysia facility will focus on expanding our building blocks with lower costs and increased volume, while other new facility will support our annual revenue capacity above $25bn.

Charles Liang, CEO, Super Micro Computer, Q2 2024, 29 January 2024

Stock No. 3 – Microstrategy

There is a possibility with this chart that all the trading since the IPO is a base from which the price can head for the stars. The phase of extreme volatility began in 2020 when executive chairman and all-round visionary, Michael Saylor, decided to bet the company’s future on Bitcoin. Crazy man or genius; we’re still not quite sure but I am leaning his way.

In recent weeks, like SMCI, the company has had two fundraisings and spent all the money on buying Bitcoin. If there is a bank manager out there looking after this company’s business he must be tearing his hair out. The company now owns 214,246 Bitcoins worth over $14bn.

The shares are all over the place because they are tied to sharp movements in the price of Bitcoin but seem to be tied by an elastic band so they move even more violently up and down and often in the opposite direction. If you think you know what the shares are going to do tomorrow, you don’t. But if Bitcoin does go through the roof Satylor and Microstrategy will do very well and the world’s first Bitcoin development company will be a huge success.

Stock No. 4 – Meta Platforms

This is a great chart. I have mentioned in the past a pattern called a bull hook, where a share rises for a long time, falls sharply, turns around and blasts through the old peak. It is a bullish pattern and META is a classic example.

Meta Platforms used to be a relatively straightforward business. Global advertising was undergoing a huge shift from off-line to online and with their huge audience share (3.1bn people use a Facebook app each day) Meta Platforms and Alphabet (via Google Search and YouTube) were picking up the lion’s share of this shift and growing dramatically as a result.

This business has matured and META is looking for new avenues for growth. The Metaverse may come good but many people have reservations. What is easy to imagine though is that GenerativeAI could be a massive opportunity for META. They certainly think so and are spending accordingly.

I recently shared that by the end of this year we’ll have about 350k H100s and including other GPUs that’ll be around 600k H100 equivalents of compute. We’re well-positioned now because of the lessons that we learned from Reels. We initially under-built our GPU clusters for Reels, and when we were going through that I decided that we should build enough capacity to support both Reels and another Reels-sized AI service that we expected to emerge so we wouldn’t be in that situation again. And at the time the decision was somewhat controversial and we faced a lot of questions about capex spending, but I’m really glad that we did this.
Going forward, we think that training and operating future models will be even more compute intensive.
We don’t have a clear expectation for exactly how much this will be yet, but the trend has been that
state-of-the-art large language models have been trained on roughly 10x the amount of compute each
year. Our training clusters are only part of our overall infrastructure and the rest obviously isn’t growing
as quickly. But overall, we’re playing to win here and I expect us to continue investing aggressively in this
area. In order to build the most advanced clusters, we’re also designing novel data centres and designing
our own custom silicon specialized for our workloads.

Mark Zuckerberg, CEO, Meta Platforms, Q4 2023, 1 February 2024

Increasingly it seems that the advertising business is becoming the cash cow funding a leap into what could be an incredible unknown. There is no question that Meta Platforms is an innovation machine working with the most extraordinary amount of data.

The next key part of our playbook is learning from unique data and feedback loops in our products.
When people think about data, they typically think about the corpus that you might use to train a model
up front. On Facebook and Instagram there are hundreds of billions of publicly shared images and tens
of billions of public videos, which we estimate is greater than the Common Crawl dataset and people
share large numbers of public text posts in comments across our services as well.
But even more important than the upfront training corpus is the ability to establish the right feedback
loops with hundreds of millions of people interacting with AI services across our products. And this
feedback is a big part of how we’ve improved our AI systems so quickly with Reels and ads, especially
over the last couple of years when we had to rearchitect it around new rules.
That brings me to the last part of our playbook for building leading services, which is our culture of rapid
learning and experimentation across our apps. When we decide that a new technology like AIrecommended Reels is going to be an important part of the future, we’re not shy about having multiple
teams experimenting with different versions across our apps until we get it right — and then we learn
what works and we roll it out to everyone. There used to be this meme that we’d probably launch
Stories on our Settings page at some point. And look, I think it’s kind of funny because it gets to a core
part of our approach.
We start by learning and tuning our products until they perform the way we want, and then we roll
them out very broadly. Sometimes, occasionally products will blow up before we’re ready for them to,
like Threads, although I’ll note that now Threads has more people actively using it today than it did
during its initial launch peak — so that one’s on track I think to be a major success. But normally, we
learn and we iterate methodically. We started doing that with our AI services in the fall, launching Meta
AI, our assistant, AI Studio, which is the precursor to Creator AIs, our alpha with business AIs, and then
the Ray-Ban Meta smart glasses. We’ve been tuning each of these and we’re getting closer to rolling
them out more widely. So you should expect that in the coming months.
From there, we’ll focus on rolling out services until they reach hundreds of millions or billions of people.
And usually only when we reach that kind of scale do we start focusing on what monetisation will look
like. Although in this case, the way that business AIs will help business messaging grow in WhatsApp,
Messenger, and Instagram is pretty clear. But that’s our basic approach, and I’m really excited about
pointing our company at developing so many of these awesome things.

Mark Zuckerberg, CEO, Meta Platforms, Q4 2023, 1 February 2024

I don’t know where this is all going but I am ready to believe it is going somewhere amazing. I even suspect that when people look back at the technology revolution in the early years of the millennium they may focus on a handful of legendary figures and Zuckerberg will be one of them. How strange to be a living legend and still two months short of 40.

Stock No. 5 – Broadcom

I have a concept which I call climb-aboard stocks. You buy them whenever because they climb and climb. Broadcom is a classic example. Not only does it climb but the angle of ascent is steep. The shares are up 86-fold since 2009 and are being a candidate as the next entrant to the trillion-dollar club.

Broadcom uses acquisitions to turbo charge growth and is arguably the greatest growth-by-acquisition story in the world just now.

In our fiscal Q1 2024, consolidated net revenue was $12bn, up 34pc year on year as revenue included 10.5 weeks of contribution from VMware. Excluding VMware Consolidated revenue was up 11pc year on year. Semiconductor solutions revenue increased 4pc year on year to $7.4bn and infrastructure software revenue grew 153pc year on year to $4.6bn. With respect to infrastructure software, revenue contribution from consolidating VMware drove a sequential jump in revenue by 132pc. We expect continued strong bookings at VMware will accelerate revenue growth through the rest of fiscal 2024. In semiconductors, AI revenue quadrupled year on year to $2.3bn during the quarter, more than offsetting the current cyclical slowdown in enterprise and telcos.

I know we told you in December, our revenue from AI would be 25pc of our full-year semiconductor revenue. We now expect revenue from AI to be much stronger, representing some 35pc of semiconductor revenue at over $10bn. 

CEO, Hong Tan, Broadcom, Q1 2024, 7 March 2024

In answer to an analyst’s question, Hong Tan explained why the AI market was going so well for Broadcom.

Let me try to perhaps give you a sense how we think of the AI market, the new generative AI market, so to speak, using it very loosely and generically as well. It’s really — we see it as two broad segments.

One segment is hyperscalers, especially very large hyperscalers with huge, huge consumer subscriber bases. You probably can guess who these few peoplewith many subscribers generating an almost infinite amount of data. And their model is getting subscribers to keep using this platform they have. And through that, to be able to generate a better experience for not only the subscribers, but a better opportunity for their advertising clients.

It’s a great ROI [return on investment] as we are seeing ROI that comes very quickly. And the investment continues vigorously with that segment, comprising very few players. And here, ASICs [application specific integrated circuits] custom silicon, custom AI accelerators make plenty of sense and that’s where we focus attention.

They also buy as a scaler those AI accelerators, increasing large clusters because of the way the models are running, the foundation models run, and large language models needed to generate those parameters. They buy a lot of networking together with it. But in comparison, obviously, to the value of AI accelerators we sell. Now the network working side, while growing is a small percentage compared to the size and value of the accelerators.

That’s one big segment we have. The other segment we have, which is smaller is the enterprise, what I broadly call enterprise segment in AI. Here, you’re talking about companies, large not so large, but large who have AI initiatives going on. All this big news and hype about AI being the saviour to productivity and all that gets all these companies on multiple on their own initiatives.

And here, short of going to public cloud, they’re trying to run it on-prem. If they try to run it on-prem, they take standard silicon for AI accelerators as much as possible. And here, in terms of the AI accelerator, we don’t have a market. That’s the merchant silicon market.

But in the networking side as they tie it together with their data centres, they do buy all our networking components beginning with switches, routers even through to people like Arista 7800, but switches for sure, and the various other components I mentioned.

CEO, Hong Tan, Broadcom, Q1 2024, 7 March 2024

Strategy – 5 Shares to Buy at the Heart of the Action in 2024

Stock markets are risky. My solution has always been not to minimise the risk but to embrace it. Shares in the most exciting companies always look the scariest to buy but are the best. If they looked safe and exciting that would be too good to be true. You have to choose – safe but boring or exciting but scary. No surprise which way I choose.

Share Recommendations

Nvidia NVDA. Buy @ $959

Super Micro Computer. SMCI. Buy @ $1060

Microstrategy. MSTR. Buy @ $1800

Meta Platforms. META. Buy @ $504

Broadcom. AVGO. Buy @ $1352

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