Despite its high valuation, Nvidia is undervalued, says Clare Pleydell-Bouverie

Mary Daley, right there, not actually having that big of an impact on the markets believe it or not we’re seeing the futures higher right now as we just mentioned the Dow on a multi day win streak. What did you make of her comments, what do you make of what we just continue to see as a stream of Fed officials given their insight. So I mean we’re we’re very confident at putting capital to work at these levels. We think that you know starting US 10 year yields of around 4 1/2% is a great tailwind for investing in high quality companies over a three to five year time horizon. Whether interest rates remain at their current levels or or do indeed we do indeed see rate cuts in the near term isn’t isn’t a chief concern for us because you know we’re investing either in companies, innovators who are driving prices down for customers, which is where demand is when rates are high and we’re all feeling the squeeze or in companies who are expanding the quality to price ratio for customers. So they’ve got pricing power so they they can really weather high interest rates. So whether whether we see one cut 2 cuts this year and we’ll just have to wait and see. But we’re just focusing on the fundamentals. I’m sure the audience they can kind of infer what you’re talking about. What you’re talking about is those big AI players, you have a lot of confidence in them. They have these tools that many companies believe can drive down their cost of Labor, also improved productivity. But right now you’re saying we’ve seen the rally in the headline AI players. Now it’s time to look at basically what the picks and the shovels are of this AI gold rush is to keep the metaphor going. You have some interesting stats. So you say because of AI we’re going to see a huge replacement cycle, more than a trillion dollars for data centers alone. Explain to me what kind of stocks are going to benefit from this replacement cycle when it comes to artificial intelligence? Absolutely. So I mean what the the key message from earning season so far has been that demand for AI infrastructure is not going away. We’ve seen this in the hyperscaler CapEx numbers. These were sensational numbers, you know meta Microsoft and Google, they collectively increased their CapEx expectations for the year by 10 billion in in just Q1. Now this elevated CapEx band is a major support for for the growth runway for leading companies in AI infrastructure. So NVIDIA, the most obviously example here, but they’re certainly not the only company We heard from Arista this week. They reported blowout numbers. Now they provide the Ethernet networking for the likes of Meta and Microsoft. Actually 40% of their revenues are directly tied to the CapEx budgets of these two companies. So they’re in a really strong position as these companies continue to build out their data center expansion. I mean that $1 trillion of of data center infrastructure that’s got to be ripped out and replaced. That is because we’ve got to see companies transition from general purpose computing to accelerated computing in order to power all of the AI related software that would that we all use today. So Claire, I feel like you might be watching the show because you also gave us a list of underappreciated tech names. So one of them is one that we spoke about on the show quite a bit yesterday, give you the whole list, Tesla, which is surprising to think it’s underappreciated, but T, SMC and the last ones in video. So we talked quite a bit about in the show yesterday. Is it overvalued, is it undervalued? It sounds like you think it’s actually undervalued even though it’s trading according to our system 37 times forward earnings. We had a guest yesterday correct us and say it’s actually 31 times forward earnings either way quite a premium over the S&P that trades it 20 times. And yeah, so I I I have around 35 times forward earnings. But I mean the the key point is that NVIDIA is still trading on more or less the similar multiple as it was this time last year because the fundamentals of this company continue to move ahead of the stock price, but who’s not appreciating it. So the market is pricing in for 2024 at 85% revenue growth. Now we think that this is conservative. If you take TSMC’s revenue guide for their AI related processes, they’re saying that this is going to double this year. Now that’s very significant because this is a very conservative management team, but TSMC probably have the most visibility of anyone on Nvidia’s revenue streams because they see the orders first. So if you apply this guide to Nvidia’s data center business and even if you factor in a 5 to 10% market share loss to AMD, you get to a revenue growth rate of comfortably above 100% for the year. So we think the market is really under appreciating this AI build out. NVIDIA is leading on product innovation, but velocity competitive to finding it very hard to catch up. So your underline is that NVIDIA is actually undervalued, yes.