Nvidia - The AI Elephant In The Room

Nvidia’s share price is on a roll.

Key Points

· Everything seems to be bigger in America – the breakfasts, the skyscrapers, the vistas, and the stock market.  After last week’s results from Nvidia, the company’s market cap increased by another $277bn(U$).  It was the biggest one day increase in the value of a company – ever!

· The results were spectacular, way ahead of market expectations. Unlike the 2000 dot.com bubble, the new ‘tech giants’ are generating prodigious amounts of profit and cash.

· Ahead of the results, many market naysayers might have highlighted the level of stock market concentration of the top 10 companies in the US, how they were all thematically similar, the narrowness of stock market leadership, the elevated valuations, etc.

· A subjective, qualitative approach could steer investors away from the very area of the market that is driving returns. But a quantitative, objective, signal-led process, such as the one used by Collidr, would recommend that investors remain invested and therefore capture exposure to Nvidia. Other than via index positions, this outcome was achieved by taking positions in funds investing directly in technology to overweight this sector and, ultimately, achieve additional exposure to Nvidia.

· As the chart shows, the market cap of Nvidia (in Sterling terms) is now two thirds bigger than the combined market cap of the 10 largest FTSE100 companies.  Those are large, well-established companies that touch our lives every day – oil, mining, banks, pharma, consumer staples.  The AI revolution may be hard to ignore.