Jefferies strategist Christopher Wood was in the awkward position of running a model portfolio without a company benefitting from the proliferation of artificial intelligence (AI). He solved this problem with semiconductor provider NVIDIA Corp. (NVDA-Q)
Mr. Wood’s popular Greed and Fear report outlined why he feels the necessity to be exposed to AI. He wrote, “the world of tech has a new killer app and history shows that killer apps in tech can have dramatic investment implications, including leading to investment bubbles.”
The strategist reminded clients that the take-up of AI is the fastest of any technology on record – ChatGPT has 100 million users after only two months. The ChatGPT website has more than a billion users per month.
Microsoft Corp., with its tie-up with ChatGPT developer OpenAI, and Alphabet are popular choices for investors looking to participate in the growth of AI. Mr. Wood, however, believes that the trend is so early that new leadership could arise at any time.
The Jefferies strategist likes NVIDIA as the end result of a ‘picks and shovels’ investing strategy. ‘Picks and shovels’ is a mining metaphor that suggests that during a gold rush, the best way to make money is to open a hardware store, not dig for gold.
In the case of AI, DRAM (Dynamic Random Access Memory) plays the role of picks and shovel. Mr. Wood highlights that AI requires servers with five to six times the amount of DRAM as regular servers, and NVIDIA is the leading provider of the type required. No matter who eventually leads the AI race, they will need to buy billions of dollars of DRAM from NVIDIA. All competitors will.
Investors thinking about following along and buying a position in NVIDIA should be aware that the stock is highly volatile. At the end of November 2021, the price was US$334. It fell 66 per cent from there until mid-October 2022, and has since rallied 143 per cent to US$272. Mr. Wood has limited the position to five per cent of his model portfolio.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Canadian Imperial Bank of Commerce (CM-T) The share price has declined over 9 per cent since troubles at Silicon Valley Bank surfaced last month, but the stock is approaching strong technical support. Jennifer Dowty takes a closer look to see if it’s time for investors to start nibbling.
The Rundown
What bearish investors are betting against: RBC sees big jump in short positions
Larry MacDonald is back with his review of the latest TSX short positions this month. One highlight: a huge jump in bets against Royal Bank of Canada.
2023 Globe and Mail ETF Buyer’s Guide Part Six: Asset allocation funds
The rise of asset allocation ETFs is one of the greatest advancements for individual investors of the past five years. But while investors have put billions of dollars into these products, they’re still underutilized. A lot of money sitting in individual ETFs, and stocks as well, would be better off invested in a cheap, well-diversified asset allocation ETF. This sixth and final instalment of the 2023 Globe and Mail ETF Buyer’s Guide will acquaint you with the choices available.
Why you should jump on a 5-per-cent one-year GIC
One of the biggest drawbacks to investing in GICs faded away last month. The inflation rate in March declined to 4.3 per cent from 5.2 per cent in February, which means it’s possible to earn a respectable real rate of return from a virtually risk-free guaranteed investment certificate. The era of high returns in GIC-land is slowly approaching its end, but as Rob Carrick tells us, you can still get returns of at least 5 per cent.
Mega tech stocks lure back investors for all seasons
After a torrid 2022 for its stock prices, it seems Big Tech can do no wrong again this year. The eye-popping outperformance of the U.S. digital and technology giants this year helps explain the slightly puzzling levity of stock markets amid all the recession handwringing - not least because these mega caps dominate the major indexes and pop up in almost every investment bucket. As Mike Dolan of Reuters tells us, these stocks in many ways are now widely seen as both the sustainable bedrock of the modern economy as well as the high-octane vehicles best placed to ride any new quantum leap in the digital world - even if expensively priced to reflect that.
Also see: Meta wins back Wall Street with AI promises
U.S. debt standoff, Bank of Japan make for potent summer cocktail
With the U.S. debt ceiling crisis set to reach boiling point between June and August, it already promises to be a long hot summer for financial markets. Throw in the possibility that the Bank of Japan reverses course and starts tightening policy round about the same time, and it could get even stickier. The crux of it is market liquidity - or more specifically, global liquidity being drained on two key fronts just when the lagged impact of the Fed’s aggressive rate hikes last year could start kicking in too. And as Jamie McGeever of Reuters tells us, aside from the unprecedented stress in short-dated U.S. T-bills right now, markets seem to be unprepared for the risks.
Also see: World’s biggest bond markets left picking up the pieces after March mayhem
Lithium prices bounce after big plunge, but surpluses loom
Lithium prices rebounded this week for the first time in five months after tumbling from record highs, but new supply of the key mineral for electric vehicle batteries coming on stream is likely to weigh on the market next year.
Foreign bullishness on China cracks as politics fuel fears
Decades-long foreign bullishness on China’s capital markets is breaking down, investment flows and interviews with fund managers suggest, with a new era of uncertainty fueled by geopolitical risks and U.S. investors especially wary.
Others (for subscribers)
The highest-yielding stocks on the TSX, plus risk data
The Globe’s stars and dogs for the week
Number Cruncher: 7 Japanese companies with sustainable dividends
Number Cruncher: Top 10 underpriced Canadian bank stocks
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Scott Barlow’s Noteworthy: Six key observations on bank valuations, energy stocks and the likelihood of a robot revolution
Globe Advisor
How investing in emerging markets is driving this US$1.3-billion money manager’s outperformance
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Ask Globe Investor
Question: I have a question with which I always struggle with when deciding to sell a stock or ETF.
When a stock or ETF has gone up, say, 5-10 per cent and still going up, how do you decide when to sell it? I always struggle with this, especially if analysts forecast a higher price target on it.
I have ZEB-T [BMO S&P TSX Equal Weight Banks Index ETF] with an 8.75 per cent gain and VDY-T [Vanguard FTSE Canadian High Dividend Yield Index ETF] with a 12.6 per cent gain in my TFSA and BMO with a 5 per cent gain in my cash account.
I keep looking at them. I find it hard to decide if I should sell these or hold on.
- Paul K., St. Albert AB
Answer: There are several things to consider. Let’s start with why you bought these securities in the first place. ZEB is the trading symbol for BMO Equal Weight Banks Index ETF. VDY is Vanguard FTSE Canadian High Dividend Yield Index ETF. BMO is one of Canada’s Big Five banks.
None of these are speculative securities. They are core investments that most people would buy for the long term. Modest gains of the type you describe would normally not trigger a sale, unless an investor was convinced the markets were about to totally collapse.
If your intention is to be an active trader, you should be buying securities that are much more volatile than these, looking for quick gains and an early exit. But if you are investing for the long haul, you should just tuck away these securities and stop fretting about small gains.
Generally, I advise selling half a position only after a security has recorded a 100 per cent gain. That allows you to take your initial stake off the table – you get all your money back and still hold a position in the security. Even if it falls to zero from there (highly unlikely), you can’t do worse than break even.
Bottom line, my advice is to hang on to the securities you refer to. Over the long term, you should end up with much larger gains than those you have now.
--Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question on the subject line.)
What’s up in the days ahead
What’s with the rally in gold prices of late, and is it sustainable? Ian McGugan will share some thoughts.
Rate hike versus bank stress: World market themes for the week ahead
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff