Another Weekly Session with Loui, our Head of Research was insightful. He provided some insights into stocks in AI sector:

Given the rise in the AI-related theme following the emergence of ChatGPT since January. We understand that the trend for selected stocks has been gaining strong momentum, namely (i) NVDA, (ii) MSFT, (iii) AMD and (iv) GOOG.

For instance, NVDA has the A100 GPUs, which have been at the foundation of modern Large Language Model development efforts, progressing further from that, the A100 has a successor H100 Hopper GPUs, which has better capability to revolutionize artificial intelligence with unprecedented power and speed and is widely available to customers across various platforms.

To provide you some context of the capabilities, Nvidia commented that the H100 is up to 9x faster for AI training and 30x faster for inference than the A100.

Pricing of A100 and H100 GPUs are more than 10-20x of average price of gaming GPU at USD1000, which is a potential earnings accretive for NVDA in the upcoming results.

Valuation wise, based on Bloomberg consensus, it is currently trading at P/E of 135.8x and the average long term P/E is at 44.5x. To provide you a context, even during the crypto mining craze when bitcoin is trading around USD60-70k in the period of 2021, NVDA’s P/E is ranging around 68-91.5x.

Although it is currently overstretched in its valuation, we believe it still has growth going forward. Reason being the virtual currency use cases are much lower as compared to AI use cases, hence we expect the demand will be much higher in the future for this AI transition, given the significant demand since the release of ChatGPT in Jan-2023.

NVDA is releasing its result on 24th of May, we expect a short consolidation, but overall trend for the next 2-5 years, we expect the upward rally to sustain.

Technical Readings - NVDA

Based on the candlestick chart, NVDA is trending within the upward channel with the potential targets envisaged around USD332-346. Support is pegged at USD280-292.

On MSFT, it has backed OpenAI-ChatGPT in 2019 with USD1bn investment and invested another USD10bn in Jan-2023.

What is there for MSFT to gain out of these investments?

We believe this partnership will open up a new chapter for MSFT with the incorporation of ChatGPT functions within Bing and its Microsoft Office. It is here to challenge Google in terms of search engine and further optimize the functionality of its Microsoft Office to the end-users.

We expect this is the start of the masses to shift from “Google it now” to “ChatGPT it”, and could grab some market share from Google in the search engine environment.

Despite having some ethical issues involving AI-related contents, we believe throughout time, the efficiency of AI in assisting humankind will be able to bring more wonderful outcomes in resolving matters for human beings.

On the investment front, billionaire Stanley Druckenmiller's Duquesne Family Office has acquired stocks in NVDA and MSFT for the first quarter.

The Family Office invested about USD220m into the NVDA and purchased MSFT shares worth USD210m.

This fresh investment signals Druckenmiller's growing appetite for AI-related stocks.

Valuation wise, based on Bloomberg consensus, MSFT is currently trading at P/E of 34.3x vs. the 10-year P/E of 25.6x. We believe the AI wave will continue and MSFT could range around 32-40x P/E due to the strong demand in the current AI developments. We opine that the Bing and Microsoft suite collaboration with the ChatGPT features will be able to capture market share from Google search engine and gain more momentum in its Microsoft Office suites.

Technical Readings - MSFT

For MSFT, it is having a similar trend with NVDA and trending within the upward channel. Based on the momentum, it may be still looking around USD338-344. Support will be located around USD306-311.

Other trading opportunities within the AI trend may include thematic ETFs such as:

ETF	Name
QQQ	Invesco QQQ Trust
SOXX	iShares Semiconductor ETF
BOTZ	Global X Robotics & Artificial Intelligence ETF
ROBO	ROBO Global Robotics and Automation Index ETF

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