The artificial intelligence boom is fuelling demand for Nvidia’s computer processing chips. Sam Benstead names the fund managers that have positioned to profit.
The hottest stock in the world right now is NVIDIA Corp (NASDAQ:NVDA), a computer chip company nearing a $1 trillion (£800 million) valuation that few people have heard of outside technology and investment circles.
The California-based company sells graphic processing units (GPUs), which are the computer chips used to process data used in artificial intelligence (AI) software, such as chat bots from the likes of OpenAI and Google, as well in gaming and cryptocurrency mining programmes.
The rise of AI is fuelling record demand for Nvidia’s processors, which are the most advanced on the market.
This week (24 May), Nvidia posted bumper results for the first three months of the year, with sales up 19% to $7.19 billion, and forecast sales of $11 billion for the three months to the end of June, more than 50% ahead of analysts' forecasts of $7.2 billion.
This sent shares surging, rising 25% on Thursday (25 May), taking them up 165% for the year and to a new all-time high. Other chip stocks also rose in value.
Big investors in Nvidia, according to data from analytics firm Morningstar, include Martin Currie US Unconstrained (8.3% in Nvidia); T.Rowe Price Global Technology (6.1%); Baillie Gifford American (5.3%); Allianz Technology Trust (5.8%); Martin Currie Global Unconstrained (6%); and Blue Whale Growth fund (9%). Polar Capital Technology Trust has 5% in Nvidia shares.
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Scottish Mortgage manager Tom Salter explained why he is a backer of the AI theme. He said: “Artificial Intelligence will likely transform many parts of the economy, but it would be foolhardy to make specific predictions. We can, however, say with some certainty that AI systems will require a lot of silicon.
“OpenAI has suggested that the computing power needed to run the latest models doubles every 14 weeks. Our holding Nvidia is a key supplier and enjoys formidable advantages, as the chip technology it has built over decades for computer games has proven ideally suited for AI computation.
“The semiconductor industry depends on ASML’s exceptional engineering skills to produce cutting-edge chips, and AI is just one driver of the strong demand we anticipate over the next decade.”
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Manager Chris Ford says that Nvidia is the most important company in the AI space.
“All roads lead to Nvidia – they manufacture the computer chips that leading AI systems are developed and implemented on, and they run the operating platforms. Nvidia is still not well understood and not as broadly held by investors,” he said.
He said that share price weakness last year had not affected the demand for computer chips in areas such as autonomous vehicles and data centres, and so Nvidia had an exciting future ahead of it.
How does the chip industry work?
The semiconductor industry is tricky to get your ahead around. There are three types of companies involved in the value chain.
The first group creates the tools and machines required to build chips. Leaders include ASML, the Dutch company that makes the lithography machines used to print the circuits on computer chips. It is the largest holding in Scottish Mortgage. Other key tools are made by LAM Research and Applied Materials.
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Intel, Samsung, and Taiwan Semiconductor Manufacturing (NYSE:TSM) then build the chips in large factories, known as fabs, with TSM making the most advanced chips, out of Taiwan. Intel and Samsung are known as integrated device manufacturers and design, build and assemble chips in house.
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