Below I am going to look at three very different shares that have dominated the performance tables in 2023. Two, you will not be surprised by but I doubt if you saw the other one coming, although we did catch it early on Quentinvest.
On the first two we are getting more and more data on what makes these potentially two of the shares of the century. The other is very different but it has some characteristics which with other shares have led to them being worldbeaters.
Table of Contents
Evercore says we’re ‘just at the very tip of the generative AI iceberg,’ and he sees Nvidia as well poised to capitalize
Nvidia Corp. ranks as the fifth most valuable U.S. company by market capitalization after recently soaring into trillion-dollar territory, and the chip maker could have its sights set much higher.
Shares of Nvidia (NVDA) have surged 194pc so far this year, and they’re up 37pc over the past month. With that backdrop, Evercore ISI analyst acknowledges the stock could face some “consolidation” in the near term, but he also sees massive opportunity in the future.
Plenty of Runway Ahead for Nvidia
There’s “still PLENTY of runway ahead — where we would actually not be surprised to see NVDA trading as the most valuable company over the next couple of years as generative AI continues its proliferation and drives acceleration in more servers over time,” he wrote in a note to clients Tuesday, as he boosted his price target on the stock to $550 from $500. Muse viewed Nvidia shares as a “top pick” and had an outperform rating on them.
Nvidia, with its fresh $1 trillion-plus valuation, has sparked a debate about “hype vs. reality,” Muse commented. He and his team “are very much of the view the that trends we are seeing today are reality and we remain just at the very tip of the generative AI iceberg,” as the full potential of AI “has yet to even be conceived, and very importantly, NVDA is not standing still.”
Muse was encouraged by the company’s focus on building an ecosystem that will be “ubiquitous across workloads in the future,” and he expected that Nvidia will “remain the dominant force and primary beneficiary of this compute evolution.”
Nvidia is the only near-term ‘beat and raise’ chip maker when it comes to AI, analyst says
Other analysts recently weighed in with upbeat views of Nvidia as well. “We continue to think NVDA’s full-stack ecosystem makes it the compute leader by far today in early innings of AI,” Jefferies analyst Mark Lipacis wrote Tuesday, highlighting commentary from a recent chat with Chief Financial Officer Colette Kress that signaled better visibility into customers’ AI interest.
Lipacis brought up his price target to $500 from $472 while keeping a buy rating.
Nvidia “is still the best AI option,” Bernstein analyst Stacy Rasgon added in his own Tuesday report. The company’s data-centre forecast “stunned” and he and his team “would take the over vs. the under on numbers as we go through the rest of the year.” Meanwhile, there’s an “enormous” and “early” opportunity for the company over the long haul.MarketWatch 20 June 2023
Nvidia’s Explosive Chart Breakout
This chart is explosive which is just what you want to see with a share which has massive potential. It is one of the strongest charts in the world, featuring a breakout from a massive consolidation, a steep rise, another much tighter consolidation, another steep rise, another consolidation and a breakout so powerful that the share price rose by almost a third in a single day. They don’t come much more explosive.
I can hardly imagine the level of excitement that must be bubbling inside this company. What a time to be one of Nvidia’s just over 26,000 employees. And remember that Nvidia is an intellectual property business. Like Apple, they leave it to other people to make the stuff they invent and that is a formula for super high profitability and spectacular cash generation.
For years Nvidia has been a cyclical stock which has made the analysts cautious. I suspect that those days are now past and a period of unbroken strong growth lies ahead and that is borne out by the comments from analysts (see above) who know much more about Nvidia than I will ever know.
If there is one share that I think could match Nvidia for excitement it is Tesla and no surprise both companies are led by larger-than-life technology geniuses, Elon Musk v Jensen Huang. On the chart we have a double whammy buy signal for Tesla and both these companies are set to produce a stream of exciting news to keep their shares bubbling.
Tesla’s Phenomenal Growth Story
Tesla is a phenomenal growth story going from a handful of Model S sales in 2012 to the gigafactories the company is now building capable of producing 1m cars a year. Meanwhile the company is driving (pun intended) ever lower costs while constantly improving the products and there is so much still to come – cyber trucks, trucks, the rumoured $25,000 Tesla, a charging network on which other makers of electric vehicles are standardising, solar power and battery technology, robots, robo-taxis and there will be more. Musk is literally a legend in his own life time.
Tesla commands an extraordinary valuation compared to its peers. With a market cap of nearly $570bn, Tesla is worth as much as the next five automakers combined. But the company is also running circles around many of its peers where battery electric vehicles (BEVs) and self-driving cars are concerned.
Tesla led the BEV market last year, and it’s market share has actually increased during the first three months of 2023. The company accounted for almost 24pc of BEV sales in March, while the next closest competitor held about 15pc market share. More impressive yet, Tesla reported the highest operating margin among volume carmakers last year. Musk attributes that success to manufacturing expertise. In fact, he says Tesla has the most advanced manufacturing technology in the world.
Going forward, management believes it can maintain its industry-leading margins, and one reason for that confidence is FSD [full self driving] software, which can be sold at nearly 100pc gross margin. Management expects FSD technology to be the most important source of profitability in the future. During the CNBC interview, Musk said it would allow Tesla to make “two or three times the original value, or sale value of the car, in robotaxi revenue.”
On that front, Tesla is well positioned to be a leader in autonomous vehicles. The company has far more autopilot-enabled cars on the road compared to its peers, which means Tesla has far more training data for the artificial intelligence algorithms that power its FSD software. Musk also believes its cars are equipped with the most efficient inference computer (i.e., the supercomputer that runs the FSD software) in the world. In short, Tesla has more data and it may have better technology, and it plans to capitalize on that advantage by mass producing a robotaxi in 2024.
So what? After building a fleet of robotaxis, the next step for Tesla will be launching an autonomous riding-hailing network, and that will significantly increase its addressable market. Ark Invest believes autonomous ride-hailing platforms will generate $4 trillion in revenue by 2027 and $9 trillion in revenue by 2030.The Motley Fool, 19 May 2023
Carvana Comes Out Fighting
As it happens the other stunning share price performer in 2023 was not Tesla but a much less well-known business, Carvana, whose shares have rocketed from $3.50 to $23.57 and have been higher. Carvana is a company which made its name as a disruptor of the used car market in the USA. It financed its large inventory of used cars with borrowed money so when interest rates skyrocketed while the value of that inventory started to fall investors and the company itself started to worry that survival was in question.
The shares plummeted but companies facing bankruptcy with their backs against the wall can be as tenacious as cornered rats and if they do survive battle hardened from the experience the future can be astonishingly bright. Carvana has always looked to me like a candidate for just such a turnaround.
The chart shows a Coppock buy signal and the beginnings of a golden cross on the moving averages, which is enough to start taking a position. The buy signal on the monthly candlestick chart came earlier between $10 and $15 but investors remain nervous and the shares are volatile.
Carvana is being forced to take drastic action to get itself back on track.
In the second quarter of 2022, we outlined our plan and discuss how we are organizing internally to tackle our goals. In the third quarter, we shared a number of operating metrics that we’re beginning to rapidly move in the right direction. In the fourth quarter, we began to see some of the earliest signs of meaningful financial progress. And now in the first quarter of 2023, the direction speed of the financial progress is undeniable. We reduced SG&A [selling, general and admin] by over $100m quarter-over-quarter and completed our year-long effort to cut $1bn of annualized costs out of the business.Ernie Garcia, CEO, Carvana, Q1 2023, 4 May 2023
As we’ve discussed before, there are 3 steps in our plan to achieve positive cash flow and get Carvana back on track to becoming the largest and most profitable automotive retailer. Number one, drive the business to positive adjusted EBITDA; number two, drive the business to significantly positive unit economics; number three, after achieving objective number one and two, return to growth. As outlined in the letter, we expect to complete the first step in this plan in the second quarter. The completion of this step is a milestone, not a change of direction. We’ll be using the same processes and focus we have benefited from over the last year to continue to see the plan through. We remain firmly on the path to fulfilling our mission of changing the way people buy cars and to becoming the largest and most profitable automotive retailer. The march continues.Ernie Garcia, CEO, Carvana, Q1 2023, 4 May 2023
Parallels Between Carvana and Ashtead
There is a UK company which makes an interesting parallel with Carvana and that is Ashtead, one of my favourite UK growth businesses, albeit that most of its operations are in the US under the name Sunbelt Rentals. Just look at their chart since they, just like Carvana, flirted with bankruptcy and saw their share price fall close to zero.
Ashtead probably was bust in 2003. On top of the hefty borrowings necessary to run an equipment rental business it had borrowed heavily to buy a US equipment rental business at a time when most US construction businesses preferred to own their equipment. They believed in their business, fought through their near death experience and then businesses of all types in the US, not just construction, decided that equipment rental was the way to go and an incredible growth story emerged from the wreckage.
It is not inconceivable that something similar could happen at Carvana. They are believers.
The last twelve months have made it harder to see, but we remain firmly on the path to changing the way people buy and sell cars and to becoming the largest and most profitable automotive retailer.Letter to shareholders, Carvana, Q1 2023, 4 May 2023
Strategy – Focus on Shares Which Could be Worldbeaters
There are two types of companies which could be worldbeaters, shares like Nvidia, Tesla and Ashtead, which already are worldbeaters and shares like Carvana, which have the ambition but not yet the performance. Both types can make exciting investments.
Nvidia NVDA. Buy @ $438
Tesla. TSLA. Buy @ $274
Ashtead. AHT. Buy @ 5376p
Carvana. CVNA. Buy @ $23.50
CFDs, Spread Betting and Capital Gains Tax
The allowance for capital gains tax in 2022/23 has been cut from £12,300 to £6,000. This has given me a thought. In the early stages of building a holding or a portfolio CFDs are more flexible than spread bets. My suggestion is to use CFDs in any given tax year until your gains exceed £6,000. When this happens, sell your CFDs, lock in that profit and reopen your positions as spread bets; that way all your gains will be tax free.
If you are not planning to use leverage then ISAs and SIPPs will be more interesting.