By Silvano Grimaldi, CEO of the independent asset management firm Grimaldi & Partners AG.
Monthly Review
International equity markets ended May 2024 with gains.
Driving Factors
- Lower US inflation in April strengthened expectations that interest-rate cuts in the United States could begin somewhat earlier.
- Investors increasingly considered a soft-landing scenario realistic, in which economic growth and inflation slow simultaneously.
- Signs that the previously resilient US labour market was beginning to weaken renewed expectations of interest-rate cuts.
Stock in Focus
NVIDIA’s Record Run Continues as the AI Boom Accelerates
NVIDIA’s business continued to grow rapidly as a result of the artificial-intelligence boom.
During the latest quarter, revenue increased from USD 7.2 billion in the previous year to USD 26 billion, representing growth of 262%.
Demand remained strong, with supply constraints for NVIDIA’s new chip systems expected to continue into the following year.
NVIDIA’s technologies were originally developed for graphics cards. However, they also proved highly effective for the computing processes required to train artificial-intelligence applications.
As a result, NVIDIA’s chips became a key technology for the future of artificial intelligence. The company also benefits from its related software and services businesses.
CEO Jensen Huang emphasised that NVIDIA technology was increasingly being used not only to train AI models but also to operate artificial-intelligence applications.
This could create a more stable business model. Training requires enormous computing power, but it generally occurs only once for each AI model. Huang also expects artificial intelligence to generate many forms of content that are currently retrieved from databases.
Growth was particularly strong in the data-centre business.
Revenue from data-centre technology reached USD 22.6 billion, more than five times the level recorded one year earlier.
Even compared with the previous quarter, revenue increased by 23%.
During a conference call with analysts, Huang described this development as a new industrial revolution.
He stated that a new type of data centre was emerging: “AI factories.”
Huang also announced that NVIDIA intended to introduce a new generation of chips every year.
In March, the company presented its Blackwell chip system. Production is currently underway, with the first customer deliveries expected in the coming months.
Blackwell is considerably more powerful than the previous Hopper generation.
Customers include major technology companies such as Meta and Amazon Web Services.
For the current quarter, NVIDIA forecast a further increase in revenue to USD 28 billion, while analysts had expected an average of slightly below USD 27 billion.
NVIDIA also operates the Omniverse platform, which allows companies to manage factories more efficiently through digital twins.
The company also supplies Mercedes with automotive computers for driver-assistance functions.
NVIDIA’s quarterly profit increased from just over USD 2 billion to nearly USD 14.9 billion year-on-year.
Following the announcement on 22 May 2024, the shares gained more than 6% in after-hours trading and exceeded the USD 1,000 mark for the first time.
NVIDIA also announced a dividend increase and a 10-for-1 stock split.
Novo Nordisk Benefits from Strong Demand for Weight-Loss Drugs, While Shares Weaken
Novo Nordisk recorded a substantial increase in revenue and profit during the first quarter, supported by high demand for its weight-loss medicines.
Products such as Wegovy and the diabetes treatment Ozempic, which is based on the same active ingredient, semaglutide, continued to experience particularly strong demand in the United States.
Following the positive start to the year, management became somewhat more optimistic about the company’s outlook for 2024.
Outlook – June 2024
Key Market Factors
- Reduced risk of a sharp US slowdown: The possibility of a severe weakening of the US economy appeared to have diminished significantly. Economic indicators increasingly supported a soft-landing scenario.
- Solid corporate earnings: Overall corporate profits were expected to remain resilient during the coming quarters.
- Improving market breadth: A growing number of sectors contributed to market performance. Equity gains were therefore no longer driven solely by the largest technology companies.
- Possibility of a temporary pause: Equity markets cannot rise indefinitely. A period of consolidation would therefore not be surprising.
Performance Expectations
For June 2024, we expect a period of market consolidation, from which a new upward movement could subsequently begin.
Stock Recommendation: NVIDIA
This publication is provided for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any financial instrument. Past performance is not indicative of future results.
