May 26, 2023
Bi Laolin
investor diary
Thursday, May 25. The financial forecast of Nvidia, a major American chip manufacturer, is so good that it is beyond imagination. The stock price reached a peak of 391.2 US dollars after the market on Wednesday. , a record high is still more than enough. Fans of Huida, who have been speculating in US stocks all night, must feel super cool at the moment, and it is not for me, otherwise, Lao Bi will be so excited that he can’t sleep.
Joking aside, the concept of artificial intelligence (AI) is sweeping the world. Huida is in the midst of this craze. The stock price has doubled since the beginning of the year. The big winners are about to report their happiness. No wonder there is a market waiting for the results of the US debt ceiling negotiations. , Huida shareholders have Huida shareholders to open P to celebrate, no matter from the perspective of individual stocks or the market, this phenomenon is worth talking about.
AI must be taught without eclipse chapter
One thing that is very conspicuous in this performance period of the US stock market is that when companies and analysts hold conference calls, there is no industry that does not talk about artificial intelligence. According to statistics from Goldman Sachs, as many as two-thirds of technology companies and three-quarters of communication service providers talk about AI in financial meetings. That’s not surprising, but AI-talking companies, from financials and industrials all the way to consumer discretionary and real estate, also make up between 19% and 26% of their sectors.
It can be seen from this that whether or not they really embrace this fascinating technology, the management will feel different degrees of pressure. It seems that if they do not talk about AI, they will be seriously out of touch with the trend, and even their competitiveness and stock price performance will be greatly reduced.
Morgan Stanley recently made some follow-ups. Even if we only focus on the technology sector, we can see from[Figure]that a basket of composite indexes composed of companies that mentioned AI in the conference call (companies with a market value of at least 30 billion U.S. dollars and uniform weights) , since the first-quarter earnings season kicked off, it has significantly outperformed the equal-weight S&P 500 and the overall technology sector. The message from this picture is clear, regardless of whether artificial intelligence can bring immediate benefits to profits, not following suit is tantamount to giving up the “AI premium” automatically. In the final analysis, no one wants to lose their reputation. The situation is a bit like the blockchain a few years ago. No matter what industry you are in, even if you just blow your mouth, the “strategy” of the enterprise must include relevant elements; looking at the current hottest topic in the technology world, None other than artificial intelligence.
The U.S. economic growth cycle has come to an end, and the macro environment and monetary policy are mostly unfavorable to the stock market. Investors want to reduce risks but are afraid of underperforming the market. More and more people regard large-scale technology stocks as “safe havens”, making the already crowded The field of AI is becoming more and more crowded, and AI “standard bearers” such as Huida have been praised to the sky.
Plus plus minus minus minus valuation
The S&P 500 index has risen by about 7% year-to-date, and Huida alone contributed 1.2 percentage points, second only to Apple and Microsoft. A very popular saying is that without the support of strong technology companies such as Huida and Microsoft that benefit from artificial intelligence, the index will fall by at least 2% this year. Leaving aside whether the U.S. stock market is really as fragile as the folks say, if the upward trend is based on a few large-cap stocks, and the strength of the related stocks is based on a technology with great potential but immature development, the bull market will not be convincing after all. From another point of view, the leading players active in the AI field are getting more and more hyped, and the sky-high valuation itself is a risk that cannot be ignored.
Although Huida’s first-quarter results far exceeded analysts’ expectations, revenue and earnings per share still recorded double-digit declines year-on-year. The median forecast of $7.1 billion was more than 50% higher.
Huida is super optimistic about the outlook for this season, but Lao Bi’s attention falls on another set of forecasts. According to management estimates, the gross margin in the second quarter is 70%, and operating expenses are 2.7 billion US dollars.
Gross profit of 7.7 billion US dollars minus operating expenses of 2.7 billion US dollars, the balance is 5 billion US dollars, and then included in the group’s mention of about 100 million US dollars of income from other businesses (other income) and 14% tax rate, plus and minus, Huida The net profit for this quarter should be slightly higher than US$4 billion. Based on the total number of outstanding shares close to 2.5 billion shares, the earnings per share will be between US$1.7 and US$1.75. Whichever is the latter, the annualized earnings per share will be about US$7. . At the time of writing, the U.S. stock market had just opened, and Huida’s stock price was as high as $383. According to the above calculation, the forecast price-earnings ratio reached 54 times.
No matter how good the company is, it needs to be cheap
Even if the second quarter results are as strong as the management’s forecast, the situation in the third and fourth quarters is still unknown. If the analyst’s forecast of Huida’s annual EPS of US$4.6 is used, the valuation is as high as 83 times.
The last time Huida’s stock price broke through the $300 mark was at the end of the cryptocurrency boom. Bitcoin peaked after hitting a record high in November 2021. Huida, which is ahead of other major semiconductor manufacturers in this field, also touched its stock price at about the same time. top. Of course, Lao Bi is not saying that history will inevitably repeat itself, but no matter how good a company is, it does not mean that it is worth buying at any price and valuation, and Huida is no exception.
(Editor’s note: Bi Laolin’s latest book “My Investment Diary” is now on sale)
Welcome to order: physical book, e-book
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