The chips are up

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Market scorecard

US markets declined again on Wednesday. The weakness in US stocks reflects the cross winds from the risk of the US defaulting on its debt and the chance of another rate hike by the Federal Reserve next month. Within the S&P 500 sectors, information technology fell 0.6%, while materials dropped 1.1%, financials lost 1.3%, and energy was the bright spot, rising 0.5%.

Adding fuel to the fire, ratings agency Fitch downgraded US debt from AAA, stating that it reflected the partisan dispute over the debt ceiling. Treasury yields climbed to the highest level since mid-March, during the depths of the banking crisis. Fitch noted that it still expects a resolution to head off default.

In company news, In company news, Nvidia (NASDAQ: NVDA ) shares rose 25% after-hours (adding around $200 billion in market cap) following the chipmaker's report that booming demand for artificial intelligence processors is fuelling revenue growth. Elsewhere, Agilent Technologies (NYSE: A ) fell 6% after the maker of lab instruments reduced its outlook for the year. Finally, retailers Abercrombie & Fitch and Urban Outfitters (NASDAQ: URBN ) logged doubled-digit gains thanks to strong earnings reports.

At the end of the day, the JSE All-share was down 1.47%, the S&P 500 fell 0.73%, and the Nasdaq was 0.61% lower.

One thing, from Paul

Noah Smith writes a blog called Noahopinion, which is a great title, lol. I really liked his recent post about why electric vehicles will really take over the world.

His main point is that the batteries got much better. "Between 1990 and 2010, scientists figured out how to make lithium-ion batteries about 2.5 times as energy dense, and then we scaled up factories and figured out how to make batteries much more cheaply, causing battery prices to fall 97% between 1990 and 2018."

Read it here: All the arguments against EVs are wrong, they are just going to win.

Michael's musings

Nvidia is up 113% this year (only 5 months), an impressive return for a large company. The stock is part of our 'future hero' holdings, and has been very volatile over the last four years. First it flew due to Bitcoin , and then crashed. Then it flew with the metaverse, and then crashed. Now it is flying due to AI. Out of the three, AI seems the most sustainable.

Due to the more than doubling in share price, in a very short period, many on 'fintwit' have been calling for an impending drop. Their forecast catalyst for the fall was meant to be Nvidia's results presentation. After the market closed last night, the company reported huge growth. Instead of the stock price crumbling, it rocketed up 25%!

The company gave very strong guidance. In the current quarter, it expects record revenue of $11 billion, 50% higher than Wall Street was expecting. Thanks to strong demand, Nvidia is also able to increase profit margins. Higher profit margins coupled with record revenue is good news for shareholders.

The demand for chips from data centres running AI has added much-needed diversity to Nvidia. It used to be the case that Nvidia rose and fell based on demand from the gaming GPU division. New game releases and GPU upgrade cycles drive sales in a very volatile industry. This year, a 38% drop in gaming GPU sales was more than offset by the demand for AI GPU cards.

We really like Nvidia, but it is not for everyone. It is a high-risk, very volatile holding. Expect the share price to continue to bounce around as the company tries to live up to high analyst expectations.

Bright's banter

Shein, the Chinese fast fashion giant, but now based in Singapore, has raised $2 billion, according to a report in the Wall Street Journal. Investors leading the round are Sequoia Capital, General Atlantic and Mubadala, the sovereign-wealth fund of the United Arab Emirates.

This latest funding values the company at $66 billion, well below the $100 billion valuation Shein received a year earlier. Shein saw its sales slowing in the summer and autumn of 2022 after years of explosive growth.

⁠Shein is known for its ultra-low prices and thousands of new styles every day. In 2023, however, it expects revenue to grow by at least 40% as demand bounces back. Last year, the fast fashion online retailer posted $23 billion in sales.

Shein currently faces regulatory scrutiny from American lawmakers amid geopolitical tensions with China. A lower valuation could give room for a pop in the case of an IPO, existing investors hope.⁠

Signing off

Asian markets are mixed this morning. The Japanese market rose, while equities fell in Hong Kong, mainland China and South Korea. The Hang Seng index is on course for a third day of losses greater than 1% as investors remain downbeat on Chinese assets.

Taiwanese stocks rose, bucking the trend in Asia as TSMC - which supplies Nvidia, climbed 3%. Elsewhere, tech bellwethers Samsung (KS: 005930 ) and SK Hynix advanced and Tokyo equipment supplier Advantest surged 16% to an all-time high.

Back here in South Africa, we await Lesetja Kganyago's interest rate decision due this afternoon. The expectation is for either 25 or 50 basis points hike. Even though inflation was lower than expected yesterday, the weakness of the Rand against major currencies forces the SARB's hand.

US equity futures traded lower in early trade. The Rand is trading around R19.30 to the greenback.

Hang in there, it is almost the weekend.

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