#Slice of Pie
#Slice of Pie
2/28/2024 11:00:00 PM
#slice of pie

AI Boom Spreading

February marked a milestone in stock performance, especially in AI sectors, led by the staggering achievements of NVIDIA. With revenue soaring over 250% and profits up by more than 750%, NVIDIA's success story is just the beginning of a broader market trend rooted in genuine earnings growth.
February marked a milestone in stock performance, especially in AI sectors, led by the staggering achievements of NVIDIA. With revenue soaring over 250% and profits up by more than 750%, NVIDIA's success story is just the beginning of a broader market trend rooted in genuine earnings growth.
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February was another very positive month for stocks, with the AI boom spreading more broadly through the market.

Led by American chip manufacturer NVIDIA (NVDA), which posted revenue growth of over 250% and profit growth of over 750%, we saw several AI-related moves pushing company share prices higher. These price moves are based on actual earnings, not hype, and to put this in context, NVDA’s price earnings ratio during February was still the same as it was at the market low in October 2022, around 30 times. The price has gone up because earnings have gone up.

In simple terms, NVDA is selling the picks and shovels of the AI gold rush. Their chips are going into data centres (they have around 85-90% market share) to power the Large Language Models or LLMs. These LLMs are machine learning models that can comprehend and generate human language text from large amounts of data. NVDA’s current customers are all the large tech companies like Microsoft, Meta, Amazon, and Google, who use the LLMs to power their AI, like ChatGPT, or rent the chips to their customers to power their chatbots. 

More significantly, I believe that if we consider AI up against other technological advancements like the internet, electricity, the automobile, or the personal computer, AI would rank up there with electricity in terms of impact and importance. You can listen to my recent podcast on Sharesies or the NZ Herald, where I go into more detail on NVDA and AI in general. 

Our KiwiSaver Growth Fund was up strongly again this month (+4.3%) as it benefited from AI-related investments we have made in chip-makers, data centres, and software applications. In general, there was a positive tone for the month, especially in US tech, which saw the Nasdaq reclaim its 2021 high, having fallen around 33% in 2022.

Reporting in New Zealand was subdued, marked by several profit warnings and companies mentioning tough trading conditions as the country battles inflation and higher interest rates. Fortunately, our own Reserve Bank (RBNZ) has recognised this and NOT raised interest rates higher. I believe we are in a recession here; consumption spending already shows that, and the data will reveal itself in the coming months. Our KiwiSaver Growth Fund has a very low exposure to NZ stocks currently for this reason. Without a geo-political shock leading to higher commodity prices, I still believe the RBNZ will cut rates into a weak economy and lower inflation later this year.

Australian reporting, on the other hand, was more robust. Our Australian investments had a solid month, with several companies up over 20% during February. Anything with exposure to AI, like data centres or software companies, all moved higher. At the time of writing, our Australasian funds are all up over 30% from their bear market lows. Thank you to our investors who stuck with us.

Whilst many investors may still be feeling battered and bruised from 2022 and even 2023 when interest rates peaked at 5% in the US in October last year, it marked a significant turning point, and in the previous four months, it’s been green lights.

Despite the strong move since October 2023 and NVDA’s huge rally, I believe we are in the early phase of the AI boom. The technology is still being implemented and will continue to improve productivity for the rest of this decade. Of course, we remain mindful of the dotcom era, where the market topped out at a time when internet adoption was still in its infancy (March 2000). And it’s likely we will see the same with AI, a market top BEFORE the tech is fully utilised. Investors have a tendency to price very optimistic or very pessimistic scenarios when faced with good news or bad news. We will remain alert for this. But at this stage, I do not believe it’s evolved into a speculative bubble. 

Thank you again for your support. If you have any questions, please don’t hesitate to email me on
[email protected]

Founder and Chief
Investment Officer


Information is current as at 29 February 2024. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme and Pie KiwiSaver Scheme (the Schemes). Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Schemes' investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.


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