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Stock Market Stars at the Heart of the AI Revolution

May 9, 2023

Not long ago I said that this amazing company would soon overtake Tesla in market value. Even I have been surprised at what has happened since. This fabulous business is now valued at approaching $200bn more than Tesla. Way to go and I think there could be much more to come.

This company pioneered accelerated computing and now it says:

Our work in AI and the metaverse is transforming the world’s largest industries and profoundly impacting society.

Website

If this company is to be believed the world has entered a period of accelerated transformation.

Everybody who develops software is either alerted or shocked into alert or actively working on something that is like ChatGPT to be integrated into their application or integrated into their service.

And so this is, as you can imagine, utterly worldwide. The activity around the AI infrastructure that we build Hopper and the activity around inferencing using Hopper and Ampere to inference large language models, has just gone through the roof in the last 60 days. And so there’s no question that whatever our views are of this year as we enter the year has been fairly, dramatically changed as a result of the last 60, 90 days.

Q4 2023, 22 February 2023

We are talking about a business at the heart of the most explosive period of transformation in world history. I think it is understandable that investors might become a little excited about this company. It is already storming ahead but that is just what you would expect if something really big is going to happen.

Screenshot 2023 05 09 at 15.35.11 | Quentinvest

The chart looks promising. We have a stock in strong uptrend which is building a consolidation. It looks promising.

The search for ‘something new’

AI, or generative AI, is a global something new which has powerful implications for Nvidia and there are always specific things going on with a business as focused on innovation as Nvidia.

Based on the latest quarterly figures research and development spending at Nvidia is running at $7.8bn a year out of annualised revenue of $24bn. This represents an incredible commitment to R&D spending. It is probably more than the whole world spent a few decades ago. It is this tsunami of R&D spend at many companies, especially in technology, which is seeing advances so spectacular that they are threatening to become frightening as in could the machines take over.

My impression is that nothing is going to stop the technology revolution so if the machines are going to take over let us hope they are nice to us.

Forget Elon Musk (well, not entirely), think Jensen Huang

Jensen Huang, the founder and CEO of Nvidia is older than Elon Musk at 60 v 51 but he is just as incredible a guy and just as important to the world. I have just been watching an interview with him and, as he says he is sprightly and full of energy. He reckons he is good for another 30 or 40 years and then he will become a robot and do another 30 or 40 years after that. He may not entirely be joking.

He is a force and Nvidia, the business he has created, is playing an incredibly important part in what is happening in the world. Is it the most important company in the world, maybe although he gives more than a nod to Taiwan Semiconductor Manufacturing, valued at $426bn, and the role they are playing.

In some ways you could say that as a business Nvidia is priceless because of the importance of the technology they control and the innovations they are making based on their initial invention of the GPU (graphical processing unit) which is increasingly at the heart of the technology revolution in the way that CPUs were in the 1980s and 1990s.

Strategy

This guy, Jensen Huang, must be so proud. He started his business virtually in a shack and now it is worth over $700bn and its products are indispensable. He probably thinks he can walk on water and if he does he has more reason than almost anyone in the world. He is an extraordinary, extraordinary man. He also, like other world class figures such as David Attenborough, and who knows maybe even our new king, seems to have picked up speed as he grew older.

I have the feeling with Nvidia that despite the extraordinary achievements to date the best may be yet to come and if that is anyone near true what a sensational investment they are going to be.

Apple and Nvidia have best charts among the megacaps

Out of all the mega caps it is between Apple and Nvidia which has the best chart. I was going to say Nvidia but Apple has an exciting chart too. If there is going to be another technology share bull market it will be amazing if Nvidia and Apple are not up there leading it although Microsoft has a pretty cool chart which means three companies with a combined value of $5.7 trillion have strong charts.

Screenshot 2023 05 09 at 19.18.58 | Quentinvest

No slowdown in share buybacks

I thought higher interest rates and supply/ demand pressures might mean that share buybacks tailed off but not for these big guns. Between the three companies they have combined share buyback programmes amounting to around $125bn, which is around 2.1pc of their market value. It is incredible that so much money is so relatively minor but still positive for the shares.

As subscribers I am sure have noticed the stock market just cannot seem to get going. It needs a trigger to lift it out of the doldrums, which is why shares are in consolidation mode. This is indicated by two things. The Nasdaq 100 is still trading at around 21pc below its all time peak. Also forbidding is the ratio of shares reaching new 12 month highs to those reaching 12 month lows. The number of new highs was 86 v 203 new lows. In a bull market new highs typically exceed new lows by a massive margin.

Salesforce shares hit a new 12 month high

I have written about this before but exciting things are happening at Salesforce.com which has another exciting, visionary, co-founder CEO in Marc Benioff, who like Jensen Huang is a positive individual for whom the glass is always half full, never half empty. He also has a wonderful turn of phrase.

As I said, we’ve hit that hyperspace button since we last talked to you a quarter ago, and I’m thrilled with the progress we’ve made. Changes that used to take months happened in weeks. Changes that used to take weeks are happening in days. And changes that used to take days are happening in hours.

Q4, 2023, 1 March 2023

The company is walking the talk.

We closed fiscal year ’23 with operating cash flow reaching $7.1bn, up 19pc year- over-year, the highest cash flow in our company’s history and one of the highest cash flows of any enterprise software company our size ever.

I also want to call out the great progress we have made with MuleSoft and Tableau. As you know, we’ve been focused over the past few quarters on reigniting MuleSoft sales growth, and this quarter was evidence that those efforts are paying off beautifully. MuleSoft was included in 7 of our top 10 deals in the quarter, and Tableau was included in every one of our top 10 deals. These acquired products are integral to our Customer 360 and enabling our customers to use our data product line to achieve a new level of excellence in managing their customer relationships and its critical data. In short, our transformation has been radically accelerated.

As you can see, our performance is significantly up already. Our productivity is also up. Our profitability is up, and we are not done. Now we’re putting into place the next phase of our transformation to profitable growth. We just rolled out our new business plan, which we call the V2MOM in partnership with our employees worldwide. Everyone in the company is now aligned around our highest priorities and our aspirations.

Q4, 2023, 1 March 2023

No surprise that AI is high on the agenda.

Our third horizon is our data cloud. In this new AI world that we are all now entering, nothing is more important for our customers than our new data cloud, which is rapidly becoming the intelligent heart of their customer engagement.

Data cloud becomes our most important cloud, augmenting every Salesforce cloud and making every part of our Customer 360 more automated, more intelligent and more real time. We just launched Tableau plus data cloud natively integrating Tableau with data cloud. So every customer can easily visualize, automate, explore and act on their data in real time.

We’re bringing even more innovation to our platform with our new Einstein GPT technology, the world’s first generative AI for CRM, a tremendous complement to our data cloud and core Einstein AI platform. Einstein GPT will be integrated into all of our clouds as well as Tableau, MuleSoft and Slack. And it is another way we’re opening the door to use AI for our future and for all of our customers.

Q4, 2023, 1 March 2023

Share recommendations

Apple AAPL Buy @ $171.5

Microsoft. MSFT. Buy @ $307

Nvidia. NVDA. Buy @ $285

Salesforce.com. CRM. Buy @ $201

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