The club had an action-packed meeting this week with a market update, an ESG proposal, and a successful Nvidia pitch.
To start things off Industrials Analyst Ian Lee ’22 analyzed this week’s market activity. All 3 major indexes were down this week, primarily due to a fall in LT government bonds. High yields make future earnings worthless, and this hurts growth tech companies. Powell and Yellen both spoke before the House Financial Services Committee on Tuesday. They expect a decent economic rebound this year, but not to Pre-Covid levels. They also both agreed that they do not expect stimulus to cause unwelcome inflation, but if it does, they have tools to deal with it. There is still yield uncertainty, with many investors not believing Powell and thinking that rates will rise sooner than estimated. New jobless claims dropped to 684,000, which is the lowest it has been since the beginning of the pandemic. Also, Biden announced that his new vaccine goal is 200 doses in his first 100 days, up from his previous goal of 100 in 100 days. Investors reacted positively to both pieces of news.
Healthcare Analyst Kate Whittier ’21 broke down Robinhood’s recent IPO filing and the blockage of the Suez Canal. Robinhood announced its confidential filing in a statement this past Tuesday. Investors have been awaiting this IPO, and the filing aims to raise funds to meet the demands of its clearinghouse post-GameStop fiasco. Robinhood is expected to start trading publicly by the end of Q2. They currently have a valuation of around $12Bn as of a round of private funding conducted in August. Kate also discussed the recent catastrophe in the Suez Canal. A massive cargo ship, the Ever Given, ran aground in the Suez Canal due to high winds from a sandstorm on Tuesday. ~10% of worldwide shipping traffic flows through this canal and it is crucial for oil and natural gas. Over 100 ships are stuck in the consequent traffic jam. Only 106 ships can cross the canal per day, so it will take days-weeks for this to resolve. The cargo stranded in or around the canal has an estimated value of $12Bn.
Marketing Director Jack Evans ’22 presented two major stories involving two of the club’s largest tech holdings. Microsoft is currently in advanced talks to acquire the messaging platform Discord for $10 Billion. Discord offers voice, text, and video chatting. Microsoft has a stockpile of cash and has been trying to make a purchase for over a year. They are looking for products that help it reach more consumers after they tried buying TikTok last Summer. Intel’s new CEO Pat Gelsinger delivered his first official statement as head of the chipmaker. He enthusiastically stated that “Intel is Back” and Investors loved his optimism. The stock was hammered back in October after comments from their previous CEO and a sense among investors that the company was falling behind its high-flying competition. Gelsinger and Intel said exactly what people wanted to hear, announcing that it will double down on manufacturing, and invest $20 billion in two new chip factories in Arizona. Our Position in Intel: Value: $25,324.00
ESG Analyst Nick Tufano ’23 presented his ESG based proposal for the Club’s portfolio. What is ESG? ESG Investing is a term that is often used synonymously with sustainable investing, socially responsible investing, mission-related investing, or screening. Since 2020 hundreds of companies have adopted ESG commitments including Blackrock, Vanguard, Nestle, Master Card, etc. MSCI is an industry-standard rating agency that grades companies ESG practices on a CCC to AAA scale. Not only do companies with higher ESG ratings succeed in pushing forward modern and morally acceptable initiatives, but they are also strongly correlated with positive and consistent earnings growth. Out of our 58 positions ratings were obtained for 52 of them (the 6 not included were either not listed or ETFs and assumed BBB). The club’s portfolio averaged 4.15 which is a BBB rating, this was weighted on how much of a stake the company held in the portfolio. With the repositioning of five positions throughout this semester, the club could improve a whole rating. Nick proposes that the club make a commitment to maintain the club’s BBB rating and seek to increase it. We will not make an initial investment in any company that has a CCC rating. We will also look to sell any company in our portfolio that holds a B or CCC rating for more than 2 consecutive quarters.
TMT Analyst Nick Sant Foster ’22, Risk Analyst Shaan Shuster ‘23, Julia Daly ’24, and Henry Nicosia ‘24 pitched Nvidia last Friday. Nvidia performed incredibly so far this year relative to NASDAQ (~0.85% YTD). Our portfolio has limited exposure to the growing semiconductor space, and Nvidia would complement our holdings in Intel. They manufacture chips that are used in a wide variety of industries including the gaming and automotive industries. These include (GPU): Make video game graphics more realistic, AI Chips: Supercomputers, data centers, driverless cars, and drug development, Nio: Nvidia will supply the chip for a self-driving car. Their biggest competitors include Advanced Micro Devices (AMD), Intel (INTC), and Qualcomm (QCOM). However, Nvidia dominates the GPU market and AMD’s acquisition of Arm could push AMD’s GPU out of the mobile market.
The pitchers believe that is an ideal time to invest in Nvidia and expand the club’s exposure to the semiconductor space. Fortune Business Insights predicts growth of the semiconductor industry at a CAGR of 4.7% until 2027. Mordor Intelligence also predicts that the GPU market will grow at a CAGR of 14.1% until 2026. Nvidia has also shown a desire to play a major role in autonomous driving, which could be a major moneymaking opportunity. The Stock is also currently selling at a discount, hovering around ~$500 as of 11 AM Friday. However, there are also several risks associated with investing in Nvidia. Some geopolitical and macro risks include the fact that China is the biggest semiconductor market, and the US is the biggest semiconductor manufacturer. The stock also has a steep valuation at P/E of 70+ and slowing revenue growth could cause an unfolding of this multiple. It is also estimated that 30% of chip orders will not be fulfilled over the next 3-4 quarters, and short-term revenue misses are possible.
The club voted to buy Nvidia. Congratulations to Nick, Shaan, Julia, and Henry on a successful pitch!