Sep 6, 2023
On Tuesday, we initiated a new position in Nvidia (NVDA), one of the key beneficiaries of the artificial intelligence super cycle, while trimming our position in Adobe (ADBE) following a strong run year-to-date. The results of the trade increased our net exposure while allowing clients to benefit from long-term secular trends we expect to continue to solidify in artificial intelligence and accelerated computing.
Let's dive in.
Investing is largely an expectations game and in order for a stock to perform well, a company generally has to meet or exceed the expectations set by investors. The year-to-date move for Nvidia is the perfect example of the forward looking nature of the market but it’s been difficult to discern what realistic expectations for the company could look like in the face of an euphoric appetite for artificial intelligence.
Nvidia’s fiscal Q1 earnings were one of the largest beats in recent memory and their Q2 results a few weeks ago proved that market expectations continue to lag reality. Their impressive report made it clear to us that shares may not be as expensive as we originally thought, and might actually be trading at a very reasonable valuation compared to Wall Street’s estimates for the next year.
Despite the dramatic move year to date, we believe we have reached the inflection point of a new computing paradigm, the same one that prompted our purchase of AMD last year. Increased visibility into supply and demand dynamics give us confidence in the long-term story for the company and Nvidia’s dominance across three critical vectors: computing, networking, and software, gives it a nearly impenetrable competitive advantage in the market for accelerated computing.
Sure, skeptics might say "didn’t Titan miss the boat"? We don’t think so. Given the implied valuation on our earnings estimates is now closer to the lower-end of its historical range, where it traded pre-COVID, we believe that the setup presents a strong opportunity to start building a position in the clear market leader.
The new reality is that artificial intelligence workloads require a dramatic step-up in computing, networking, and software intensity and we believe Nvidia is best-positioned to be the primary provider of all three.
Adobe is unequivocally viewed as an AI winner by the market as evidenced by the stock moving over 67% year to date. We remain constructive on the long-term story, with pricing announcements and M&A potential providing opportunity for further strong performance. A trim here allows us to control the size of the position while booking solid gains for Flagship clients.
As always, let us know if you have any questions about the recent trades; we’re happy to assist.
– Your Titan Team
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