What Flavour Chips Do You Sell? – Weekly Stocktake with Danyaal

What Flavour Chips Do You Sell? – Weekly Stocktake with Danyaal

Weekly Stocktake with Danyaal

24 February 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 049 79 272 76 928 5.31%
NASDAQ Composite 10 467 11 787 11 395 8.87%
S&P 500 3 840 4 079 3 970 3.39%
Prime Lending Rate 10,50% 10.75% 10,75% 2.38%
Lunar BCI WW Flexible Fund 141,43 156.40 157.60 11.43%
USD/ZAR 16,98 18.04 18.42 8.48%
EUR/ZAR 18,44 19.30 19.44 5.42%
Brent Crude ($’barrel) 85,95 82.97 82.81 -3.65%

Source: Iress

What Flavour Chips Do You Sell?

Nvidia, a semiconductor (computer chip) development company that primarily focuses on designing graphic processing units (GPU), released their FY2023 results last week. If we were to look only at the numbers, we would think that Nvidia is in a market-losing position. Revenue remained flat; gross profit decreased by 12%; and net profit decreased by a staggering 55% compared to the previous year. So why did the stock price increase by over 8% during the week?

 

During the earnings call, Nvidia highlighted that they were well-positioned to take advantage of the recent Artificial Intelligence (AI) boom. GPU’s are used extensively in the infrastructure for AI applications. GPU’s use a method of computing called parallel

processing. This allows these chips to run multiple “simple” tasks at the same time; compared to central processing units (CPU) that are able to run more complex tasks, but they can only do those sequentially. GPU’s are used in multiple applications. They were initially used in computers to help process graphic output for computers. But then they were found to have a wider range of uses in cloud-computing, crypto-mining, and AI computing.

 

Nvidia have adapted their semiconductors to suit different uses over time. “When there’s a gold rush, it’s good to be in the business of spades.” However, this approach has led to fluctuations in their earnings, as evidenced by the significant decrease in their net profit from FY2022 to FY2023. During the crypto-mining boom, Nvidia’s GPUs were in high demand, with some chips on the second-hand market selling for more than their official retail price due to stock shortages. However, when the crypto market crashed, Nvidia were caught with a surplus of unsold chips, causing their gross margin to drop from 65% in FY2022 to 57% in FY2023.

 

Nvidia are still likely to be in a good position though. According to Jensen Huang (their Founder and CEO) Nvidia have been able to increase their AI processing power a million times over the last decade. No small feat. We are already seeing AI applications like ChatGPT in use. Depending on how far the AI revolution goes, Nvidia could likely be positioned to benefit from it.

Nvidia is held in the Lunar BCI WW Flexible Fund

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Disclosures
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
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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