Small Cap Value Report (Thu 25 May 2023) - HEAD, SUS, LSL, CHRT, BOOT

25th May by Paul Scott

46 comments 6400 reads

Good morning from Paul and Graham!

Charity challenge - Our friend Damian Cannon, who many investors will know as the presenter of the StockSlam evenings, and all round lovely chap, is doing a truly remarkable challenge for a very worthwhile charity. He's going to run up to the top of a city skyscraper, then cross to the gherkin on a zip wire! I feel bilious even thinking about it. Anyway, if you can bung his charity, Tommy's, which helps research and support re miscarriages, a few quid, I know he'd be very grateful. Link here to his donating page.

I thoroughly enjoyed Mello Chiswick, and was one of the last to leave when they closed the bar at nearly midnight. It was terrific to meet up with lots of investor friends, and meet new ones, many/most being Stockopedia subscribers. What struck me is how everyone has their own distinctive approach, and many of the people I spoke to are obviously very shrewd indeed. So overall I had some fascinating chats with some lovely people! I do hope physical investor events continue, as it would be such a shame to lose everything to online.

Talking of which, Mello has an online only third day today, starting at 1pm, with some very interesting speakers that I'm looking forward to hearing from. I find there's always at least one key point from almost every investor talk that gives me an insight, so I lap up these type of things, and podcasts.

I did my quarterly catch-up on Monday with Paul Hill, which you might find of interest. I think 1 (Watkin Jones), maybe 2 (Portmeirion?) of the companies mentioned issued profit warnings the next day, which must be a new record! Very difficult markets at the moment, for sure.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day,…

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James Weston

25th May

'a charming chaps company'

Superb!

It was a pleasure to meet you and share a chat and a beer.

iamflimflam1

NVIDIA seem to be extremely lucky. They did very well from the crypto boom and just when that seemed to be collapsing and prices of high end graphics card were coming down the AI boom appeared.

You need a lot of GPUs (graphics cards) to train and run these very large models. So they should continue to do well if the AI trend continues.

Ben Hazzard

Hi Mark, with NVIDIA (NSQ:NVDA) its important to remember what they do. In the main, they produce, a physical product, in this case chips. Whilst they implement some other technology systems and products, chip making is their primary source of income. As with any physical product it can, to an extent, be replicated by other companies. I recognise Nvidia is the market leader, much like Tesla with EV, but I cannot comprehend how it is worth $400 per share. The PE must be well over 200 times after last nights rise. Is there really scope for that level of growth where there are competitors like Taiwan Semiconductor Manufacturing Co (NYQ:TSM) setting up factories in the US? I personally think Nvidia is in a purple patch where its stars have aligned with the AI trend and a fantastic set of earnings. If I held, I would most certainly be selling up when the US market opened today and taking my profits.

To answer your question on what it means for US and UK markets, I actually think very little. There are a few companies right now, predominantly Nvidia, Microsoft (NSQ:MSFT), Alphabet (NSQ:GOOGL) that are almost immune to geopolitical concerns. I think they are being invested in as safe havens by many investors. I would not be surprised to see the likes of Palo Alto Networks (NSQ:PANW) and Crowdstrike Holdings (NSQ:CRWD) move into this category over the next year or so as cybersecurity becomes the next big thing.

Ben

I hold Alphabet (NSQ:GOOGL) and Crowdstrike Holdings (NSQ:CRWD)

RJS89

NVIDIA (NSQ:NVDA) is Mr Market enjoying himself and having a throughly good time - 29% up post/pre market is just bonkers; it's the equivalent of over £150B added to their market cap!

For context: that's 2/3s of a Coca Cola, or an entire Wells Fargo, or 1 and a half American Expresses!

As an aside it is decimating everyone who tries to short it, which is enjoyable to watch

eggbaconandbubble

Hello Stockopedia peeps, one and all. May I make a suggestion (cos I'm lazy!). 'Securities mentioned' to RHS this page. How's about ALL securities mentioned put there such that one can quicly leaf through.

I may hav4 posted this in the wrong place. In which case - apologies!

TSMC actually manufactures most of NVIDIA's chips.

TSMC is very much a contract manufacturer - they own the silicon foundries and specialise in doing that job very well. They also make Apple's M1 and M2 chips and a whole bunch of chips for other companies - it's probably not in their interest to compete directly with their customers and they don't really have the knowledge to do it.

NVIDIA's real value is in its IP and knowledge of how to design GPUs.

Mark Carter

By coincidence, I bought a graphics card off ebay the other day, and still waiting for it to be delivered. I wanted something extremely cheap - as cheap as possible - because it was for an old computer that lacked HDMI and it was type I was looking for. I opted for a second-hand unit. The cheapest new graphics card seem to be about £50 on Amazon. Nvidia's site is showcasing graphics cards for £1200 and even more. These are crazy high prices.

Indirectly, that was the kind of question I was asking. A market lacking breadth and concentrating on a handful of winners in tech. It feels rather like 1999 all over again with the possible exception that the markets are perhaps a little more risk-averse now than they were then.

I found an interesting site that folks might like to check out: https://www.multpl.com/s-p-500...

It shows the S&P500 PE ratio. The graph shows it to be around 24, which is pretty high. Confusingly, the table below it shows lower mean and median. I assume that means an historic average.

The US markets seem to have moved into a "new paradigm" sometime in the 1990's where a PE of 15 was a floor rather than the average.

Howard Adams

With regard to NVIDIA (NSQ:NVDA) (I hold). Not one for the SCVR I accept. But the rapid evolution of AI, LLM's and Chatbots or co-pilots is. These technologies will effect all of us and certainly all size of companies.

As some in the thread have questioned the stock price rise of NVIDIA (NSQ:NVDA) and its resultant valuation I thought I would prompt ChatGPT to provide a possible explanation as to what might be occurring. This is the prompt I posed to ChatGPT

What aspects of Nvidia's business model help to make Nvidia stand out from any likely competitors such as AMD, Intel, TSMC or ASML

ChatGPT response is quite lengthy (I could have requested a shorter version, but thought some might be interested to read some of the detail about this fast evolving technology).

Nvidia stands out from its competitors in several ways:

GPU Expertise: Nvidia's core strength lies in its expertise in graphics processing units (GPUs). They have been designing and optimizing GPUs for decades, giving them a significant advantage in performance, power efficiency, and scalability. This expertise has allowed Nvidia to create GPUs specifically tailored for AI and machine learning workloads, giving them an edge over competitors like AMD and Intel, who are primarily known for their CPUs.
AI and Deep Learning Focus: Nvidia has strategically positioned itself as a leader in AI and deep learning technologies. They have invested heavily in developing software frameworks like CUDA and libraries like cuDNN, which provide developers with tools to build and accelerate AI applications. Their focus on AI has resulted in the creation of specialized hardware solutions like the Tensor Cores, which deliver exceptional performance for deep learning tasks. This specialization has given Nvidia a strong foothold in the AI market.
Datacenter Dominance: Nvidia has established a dominant presence in the datacenter market, particularly in AI and high-performance computing. Their GPUs are widely used by research institutions, cloud service providers, and enterprises for training and running AI models. The popularity of Nvidia's GPUs in the datacenter space has created a network effect, making it harder for competitors to challenge their market position.
Ecosystem and Partnerships: Nvidia has built a robust ecosystem around its GPU technology. They collaborate closely with software developers, researchers, and industry partners to optimize their tools and frameworks for Nvidia GPUs. This collaboration extends to major cloud providers, who offer Nvidia GPU instances, further cementing Nvidia's market presence. Additionally, Nvidia's acquisition of ARM Holdings, a leading semiconductor IP company, has opened up new opportunities for expansion into various markets.
Vision for the Future: Nvidia has a clear vision for the future of computing, with a focus on AI, autonomous vehicles, robotics, and edge computing. They have been actively investing in these areas and developing specialized hardware and software solutions to address the unique challenges they present. Nvidia's forward-thinking approach and commitment to innovation give them a competitive advantage and position them as a key player in shaping the future of technology.

While competitors like AMD, Intel, TSMC, and ASML have their strengths and compete in various aspects of the semiconductor industry, Nvidia's combination of GPU expertise, AI focus, datacenter dominance, ecosystem partnerships, and forward-looking vision helps them maintain a distinctive position in the market

**** end of ChatGPT response *****

I repeated this response and others through Google's Bard. It's responses were quite good but not nearly as 'rich' as this one.

So, as an aside, this is also an example of how I as a investor is making use of these two (free) AI tools to broaden my own research. The time saving is very beneficial. Plus, I am evolving my skills as a 'Prompt Engineer'. I skill we will all develop as these AI/LLM's permeate our lives.

Regards

Howard

MichaelFBS

NVIDIA (NSQ:NVDA) up 25% in a day. I assume it is a small cap? That is the sort of excitement I like! I hold (very small position but getting bigger).

Michael

Mark

Surely there is one major difference here compared to 1999 and that is that the companies showing extraordinary gains this year are profit making in spades and not been valued on eyeballs, clicks or sales?

Alphabet (NSQ:GOOG) 39%

Amazon.com (NSQ:AMZN) 37.2%

Apple (NSQ:AAPL) 32.5%

Meta Platforms (NSQ:META) 109%

Microsoft (NSQ:MSFT) 34%

Netflix (NSQ:NFLX) 23.3%

NVIDIA (NSQ:NVDA) 161%

Tesla (NSQ:TSLA) 49%

I hold all but in small size except Apple (NSQ:AAPL) which I hold through my holding in Berkshire Hathaway (NYQ:BRK.B) and while they may have got away from themselves a bit maybe they were oversold. I am not going to analyse them individually here but most are well below ATH's.

My thinking (oh they are over priced, wait until they pull back) has cost me a fortune in the past. Drip feeding some money in to these over a couple of years to give a 10% to 15% weighting in a portfolio will work out very well over the next 20 years or so. Just my opinion and DOYR etc etc.

Are you sure it is luck? I'm not.

shopping365

Yes I must confess to be very happy today with NVIDIA (NSQ:NVDA)'s news. I was quite impressed with the ChatGPT response to Howard Adams question below until I got to point 4 where it stated it had taken over ARM. This acquisition did NOT happen, it was terminated in February 2022, which can be confirmed by checking on the NVIDIA website (sorry I couldn't get the link to work).

For anyone interested in NVIDIA I would suggest they visit their website which has a lot of comprehensive information of the sectors they are involved in.

I've held since 2016 and my most expensive purchase was at $59, so have no intention of selling despite the fact I expect the share price will pull back from where it is today.

Buyandverify

Forward PE is about 50 now. Expensive but not outrageous.

Should have added there was a 4 for 1 share split in 2021 so the book cost was actually $14.75 rather than $59

andatza

The publicly accessible version of ChatGPT stopped "learning" in 2021, so it is not up to speed on anything that has happened since then - such as Nvidia terminating its agreement to buy ARM in 2022. As well as not having up-to-date knowledge it is also prone to make up "facts". So I wouldn't recommend using ChatGPT to analyse company strategies, ask about competitors, give investment advice, etc.

ChatGPT freely admits to this shortcomings:

"My training encompasses a wide range of internet text up until September 2021. It's important to note that while I can provide information and generate responses based on that training, I don't have the ability to learn or update myself in real-time."

organictrader

This made me chuckle

Caper4

Think some may have been put off by the Stocko quality rating !! Zero

Hi andatza

Your point is completely true, and I concur with it completely.

That is partly why I always push my prompts through both ChatGPT (I am fully aware of its cut off date) and Bard. Because Bard is real time, thus it does incorporate events such as the one you point out.

The main point about my post is how we as investors can utilise these tools to get a vast amount of insights in seconds.

Clearly we all need to be cautious about the output (the technology is in its infancy) but if a prompt is thoughtful, then in most cases the output is pretty good and offers a far more extensive analysis (in seconds) in contrast to anything that I could have uncovered in several hours of research.

The example I presented is, but a single illustration of how these tools are penetrating into any part of our lives whereby we have a curiosity about any subject whatsoever.

Thus, the most salient point is that I believe every investor needs to pay attention to events as every investment we make will become effected by these technologies. Some are terming this roll out the fourth industrial revolution, which it might be. But one major differentiation, from the past, is the speed by which this assimilation is occurring. It is in days and weeks, not even months and years.

cmh

Small Cap Value Report (Thu 25 May 2023) - HEAD, SUS, LSL, CHRT, BOOT

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Paul Scott

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