STOCK MARKET BLOG MAY 2024

by the CEO Silvano Grimaldi of the independent asset management company GRIMALDI & PARTNERS AG

MONTHLY REVIEW

International stock markets ended the month of MAY with gains.

DRIVING FACTORS

The weaker US inflation in April is leading to somewhat faster US interest rate cuts.
The scenario of a " soft landing " is expected to be realistic, with growth and inflation cooling simultaneously.
Signals of a weakening of the long-robust US labor market have fueled expectations of interest rate cuts.

EQUITIES IN FOCUS

NVIDIA 's record run continues thanks to AI boom

The business of the chip company Nvidia continues to grow explosively due to the AI boom. In the last quarter, sales rose from 7.2 billion dollars in the previous year to 26 billion dollars - an increase of 262 percent. And demand remains strong: bottlenecks are looming for Nvidia's new chip systems well into next year.

Nvidia technologies were originally developed for graphics cards. But then it turned out that they were also ideal for the computing work involved in training applications with artificial intelligence. Nvidia's chips thus became a key technology for the future of AI - and the company also benefits from the business with associated software and services.

Nvidia technology is now no longer just used for training, but also for operating AI applications, emphasized CEO Jensen Huang. This has the potential to be an even more stable business. Although training requires enormous computing power, it is only necessary once per AI model. Huang also assumes that AI will generate all kinds of content in the future that is currently retrieved from databases.

The data center technology business grew particularly strongly in the last quarter. At $22.6 billion, sales were more than five times higher than a year ago. Even within three months, there was still an increase of 23 percent. In a conference call with analysts, Huang spoke of a "new industrial revolution". A new type of data center is on the rise: "AI factories."

Nvidia now wants to introduce a new generation of its chips every year, said Huang. In March, he introduced the "Blackwell" chip system. It is currently being produced and the first devices are expected to be delivered to customers in the coming months. "Blackwell" is much more powerful than the previous "Hopper" generation - and not only tech giants such as Facebook's Meta and Amazon's cloud division AWS are on the customer list.

For the current quarter, the group forecast a further increase in sales to 28 billion dollars - while analysts on average had expected a forecast of just under 27 billion dollars.

Nvidia also operates the "Omniverse" platform, which enables companies to better control their factories using so-called digital twins, and supplies Mercedes, among others, with car computers for driver assistance functions.

Nvidia's quarterly profit jumped from just over $2 billion to just under $14.9 billion year-on-year. The stock rose by a good six percent in after-hours trading on Wednesday, May 22, 2024, exceeding the $1,000 mark for the first time. Nvidia also announced a dividend increase and a 1-for-10 stock split.

NOVO NORDISK benefits from appetite suppressants - share weak

The pharmaceutical company Novo Nordisk recorded a jump in sales and profits in the first quarter thanks to the high demand for its appetite suppressants. Weight loss aids such as Wegovy and the diabetes drug Ozempic, which is based on the same active ingredient (semaglutide), are currently experiencing extremely high demand, especially in the USA. In view of the good start to the year, management was somewhat more optimistic about 2024.

MONTHLY OUTLOOK

The risks of a sharp slowdown in the US economy seem to have been virtually eliminated. Economic indicators point more towards a "soft landing".
Corporate profits are expected to remain solid overall for the coming quarters.
It is positive that the market breadth and the weighting of individual sectors to market performance are increasing. This means that the price gains are no longer solely driven by the Big Tech companies.
However, as we all know, trees don't grow to the sky. A pause in stock prices will therefore come as no surprise.

We expect a consolidation on the stock markets in June, from where a new upswing should begin.

SHARE RECOMMENDATION: NVIDIA