Artificial Intelligence: Beyond the Hype or Just Another Illusion?

Artificial Intelligence: Beyond the Hype or Just Another Illusion?

23 May 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
Lunar BCI WW Flexible Fund 141.43 168.85 169.40 19.78%
JSE ALSI 73 049 78 176 76 590 4.85%
NASDAQ Composite 10 467 12 658 12 976 23.97%
S&P 500 3 840 4 192 4 205 9.52%
Prime Lending Rate 10,50% 11.25% 11.75% 11.90%
USD/ZAR 16,98 19.42 19.65 15.72%
EUR/ZAR 18,44 20.99 21.09 14.37%
Brent Crude ($’barrel) 85,95 75.84 76.10 -11.46%

Source: Iress

Weekly Stocktake with Danyaal

Artificial Intelligence: Beyond the Hype or Just Another Illusion?

The rise of generative Artificial Intelligence (AI) products like ChatGPT has led companies in most sectors to seek ways to incorporate AI into their businesses. On the flip side, investors are wondering how they can make the most of this trend. They’re asking themselves who stands to gain from this wave and whether it’s a long-term phenomenon or just another hype?

Nvidia, a company held by Lunar Capital, recently released their Q1 2024 results and outlook. Nvidia designs semiconductors and develops software for AI programmes and services to run on. This allows companies like Microsoft and Open AI to build AI-products and services using Nvidia’s chips. Clients like banks and retailers then build AI-based solutions to service their clients and support their businesses.

While Nvidia’s revenue for the quarter dipped 13% to $7.2 billion compared to the same quarter last year; their net income increased by 26% to $2 billion. What really caught the eye of investors was their projection for the next quarter. Nvidia guided that they expect to earn $11 billion in revenue. If they hit that mark, it’ll mean roughly 50% increase in revenue from the current quarter. And it’s not just the revenue that’s climbing, as seen from the current quarter, their net margin has expanded too. As a result, Nvidia’s stock price soared by 24.6% last week, making them the 6th most valuable public company in the world with a market cap of $963 billion as of Friday last week.

Is AI another case of market-hype causing fluctuations, similar to what we’ve seen with crypto and the metaverse booms and busts? Or is this technology here to stay? Investors have high hopes for Nvidia. Looking at their rolling twelve month period, their price-to-earnings ratio stands at 203. In theory, if an investor were to buy the stock at these prices and the yearly earnings remained unchanged, it would take them 203 years to recover their investment. The expectations for Nvidia in the coming years are high, but it will take time to see if the company can live up to them.

Nvidia and Microsoft are held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio Management clients.

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Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.
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Every Wednesday, at 07h45, Sabir chats with Nazia from Eastwave Radio (92.2 fm, live stream on
www.eastwave.co.za) on investing and the markets.

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