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Growth Team Weekly Investment Insights

28 February 2024   |  

1) NVIDIA Delivers Again

Fueled by its H100 chip, which has become the industry standard for AI development, NVIDIAs’ earnings have risen more than 700% from a year ago. Looking at the trend in FactSet consensus estimates, analysts were expecting 2024 EPS of just $6 at the beginning of 2023. Fast forward to today and analyst are expecting $25.












Source: FactSet, as of 2/23/2024

Big Tech companies account for nearly 40% of Nvidia revenues, but its customer base has become more diversified. CEO Jensen Huang said industries including automotive, financial services and healthcare were now spending on its chips “at a multibillion-dollar level.” He added governments including Japan, Canada and France were becoming larger Nvidia customers as they harness citizen data to create their own AI models.

Shares rallied on the news, and Nvidia’s has leapfrogged Amazon and Alphabet to become the third-most valuable US-listed company behind Microsoft and Apple.













Source: FactSet, as of 2/23/2024

Given their growing importance in the global economy, semiconductors have been heralded as the oil of the 21st century. After this recent move, Nvidia is now worth more than the entire S&P 500® Index’s energy sector.













Source: FactSet, as of 2/23/2024

2) The ARM Versus Softbank Dislocation

Nvidia is not the only semiconductor company benefiting from the AI boom. Another example is Arm Holdings. Shares exploded higher after reporting better-than-expected earnings results earlier in February.

Interestingly, only 10% of the company’s shares trade because SoftBank owns 90% of the company. After this recent rally, SoftBank’s stake in Arm is worth significantly more than the company itself.














Source: FactSet, as of 2/23/2024

3) Market Marches on Despite Elevated Valuations

Last week continued a broader US market rally in February, despite seemingly elevated valuations. FactSet recently published a note highlighting S&P 500 ® Index valuations.  At a forward 12-month P/E of 20X, the index is above its 5-year (18.9), 10-year (17.7), 15-year (16.1), 20-year (15.6) and 25-year (16.4) averages. In fact, prior to January 29, the last time the ratio had been above 20 was February 9, 2022 (20.2).

Source: FactSet, as of 2/12/2024

Some of this can be explained by the different makeup of the index since it is more technology-heavy relative to history. However, eight sectors have forward 12-month P/E ratios that exceeded their 25-year averages (including technology).

Source: FactSet, as of 2/12/2024

4) Replace or Repair?

The Financial Times published an article last week highlighting an issue facing the renewable energy push in Europe. Europe’s installed base of wind power infrastructure is ageing, and a crucial part of Europe’s energy future is a question of what to do with its oldest turbines? Highlights include:

  • About a fifth of the continent’s roughly 90,000 onshore turbines are at least 15 years old—the normal lifespan of a wind farm with minimal maintenance is 20 years. Letting them expire would waste valuable resources because the earliest wind farms were built in prime sites with the strongest winds.
  • The location issue is why the EU is pushing to repower by taking down the oldest turbines and using the same sites to erect cutting-edge new windmills; they are taller, more efficient and pump out more electricity. But the shift can be a costly, complicated process.
  • A typical 20-year-old machine, whose blade tips reach as high as 90 meters, generates 800kW. A new model produces 7,000kW with blades that rise to 240 meters or more. A single rotation produces more energy than an average Spanish household consumes in a day.














5) Rising German Investment in the US

This Financial Times article highlights an example of rising investment here in the United Statels as supply chains shift. German companies announced a record $15.7bn of capital commitments in US projects last year, up from $8.2bn a year earlier, dwarfing the $5.9bn pledged in China.












German companies announced 185 capital projects in the US in 2023, of which 73 were in the manufacturing sector. Senior executives at BASF and Siemens Energy — two of Germany’s largest companies — said a combination of pragmatic US government industrial policies, a strong long-term market outlook and increasing focus on supply chains was driving US investment.  









Artisan Growth Team manages portfolios which held securities issued by Amazon, Alphabet and Microsoft as of 12/31/23.  Portfolio securities are subject to change.

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