Weekly Market Update – Week Ending 23/02/24

Much of the growth in the S&P 500 over the past year has been fuelled by the emerging investment opportunity within artificial intelligence. Bang at the centre of this technology is Nvidia’s graphics processing units (GPUs).

Nvidia’s GPUs enable researchers and businesses to extract valuable insights from large datasets through AI and machine-learning algorithms. They essentially provide the building blocks for the technology and are an example of how investing in the ‘picks and shovels’ of an industry can be a good approach.

The strategy derives its name from the California Gold Rush that occurred in the 1840s and 1850s. During this period, individuals intending to search for gold had to acquire a pick and a shovel as essential tools in their pursuit of wealth. While there was no guarantee of striking gold, the companies responsible for the manufacturing of these vital tools benefited from increased revenue, irrespective of their customers’ luck.

With demand for Nvidia GPUs rocketing in the last 12 months, investors waited patiently on Wednesday (after the market close) for the release of their latest quarterly earnings data. They certainly weren’t left disappointed with the company reporting that revenues jumped some 265% to $22bn in the three months to 28th January, compared to a year earlier. Looking at the year as a whole, turnover more than doubled to $60.9bn.  Having been volatile in the days leading up to the results, the stock price finished Thursday some 16% higher and provided a boost to the wider technology sector.

John Naylor, Chartered FCSI – Head of Investment Committee