Riding high off last week’s 25 basis point interest rate cut (despite most of us having hoped for a little more), the markets responded well and there’s a general optimism in SA and globally (off the US’s rate cut).

This, of course, means relief for consumers and a little more liquidity in the market, but also paves the way for more consecutive rate cuts over the next few months.

Now, one of the questions on your mind is likely how you’re going to make the most of this, and we’ve had some comments about AI and tech in your responses recently. So today we’re looking at the sector – specifically, the big chip manufacturers…

Shining some light on 🔦 

• Smart AI investment: The battle of the chip giants.

• Tesla rallies, a Scottish bargain & 4Sight’s growth.

• Stock update: Higgo’s Top 10 stock picks for 2024

• Earnings calendar: Who’s reporting on revenue, when

• How to strategically diversify your portfolio.

THE SPOTLIGHT

Smart AI Tech Investment

It’s no secret that the AI tech space has attracted a lot of interest and scepticism of late – the market has grown by over 150% since 2022 and investment by over 50% YoY.

Yet a lot of that has been in the high-risk strategic development side – your Microsofts and OpenAI’s signing big deals the average investor will never even see.

So how do you get a slice of the AI pie? Well, one worthwhile option is the established market performers that serve/supply the big AI cats – one of our favourites being your chip manufacturers: they have established presences on stock markets, have earned investors money for some time, yet are still positioned to benefit off the AI wave.

Here are the AI chip investments to note…

Institutional Confidence in AMD

Recent filings reveal that British Columbia Investment Management Corp significantly increased its holdings in Advanced Micro Devices (AMD) by nearly 60% in the second quarter of 2024. 

This move reflects growing confidence among institutional investors in AMD's potential amid the accelerating AI movement. Other institutional investors are following suit:

• Tradewinds Capital Management LLC more than doubled its holdings in AMD.

• Morton Brown Family Wealth LLC nearly doubled its investment.

• New positions were opened by Fairway Wealth LLC and Northwest Bank & Trust Co.

• Semmax Financial Advisors Inc. increased its stake by over 900%.

Analysts are also optimistic, with the majority rating AMD as a "buy" and setting price targets that suggest substantial upside potential.

Nvidia's Position in the AI Landscape

Despite a recent dip in stock performance, Nvidia remains a powerhouse in the AI sector. 

Concerns about the sustainability of AI spending and increased competition have caused some investors to hesitate. However, recent insights from Wall Street suggest that these worries may be overblown – JPMorgan analysts predict that AI infrastructure capital expenditures will accelerate, estimating that spending from major cloud providers like Microsoft, Amazon, and Alphabet will grow at 24% annually over the next five years.

Even losing its position as the top-performing S&P 500 stock didn’t stop analysts from arguing that now might be the time to invest. In fact, Nvidia has also been a standout over the past five years, leading the list of "10-bagger" stocks – those that have increased tenfold in value. 

That said, you still practice caution with these stocks because the market remains volatile.

Navigate the AI Investment Trend with Our Tools

The AI movement is not just a technological trend; it's reshaping the investment landscape. And to help you make informed decisions in this evolving market, we're offering two valuable resources:

1. Risk Profile Assessment Tool: Understand your risk tolerance to make investment choices that align with your financial comfort zone – see yours with Finimals now.

2. Investment Goal Management Tool: Set, track, and achieve your financial objectives with personalised strategies – manage yours with Goals here.

Note: This is not financial advice, merely observations. For personalised financial advice, you can book to speak to a financial advisor here (powered by a registered FSP: No. 51310).

STOCKS AND ALL

📈 4Sight’s Growth: 4Sight Holdings (JSE:4SI) achieved a 41% annual EPS growth over the past three years, with revenue increasing 28% to R941 million while maintaining stable EBIT margins. Insiders hold a significant 56% stake, aligning their interests with shareholders. CEO compensation is below the median for similar companies, reflecting prudent management.

🔌 Sasol & Eskom Explore LNG: Sasol and Eskom signed an agreement to explore liquefied natural gas (LNG) supply, aiming to prevent a 2027 gas supply crisis. While Sasol (SSL) has been listed among the “worst stocks under $10”, it reported improved productivity, including a 6% rise in Mozambique gas production and reduced capital expenditure.

🌍 Brookfield’s $2.4B Raise: Brookfield Asset Management has raised $2.4 billion for a climate-finance fund, targeting clean energy in emerging markets. Supported by the UAE’s Alterra fund, it aims for a $5 billion total capital raise by 2025. Meanwhile, British Columbia Investment Management Corp sold 163,245 shares of Brookfield in Q2, trimming its stake by 9%. Despite this, Brookfield’s stock has gained traction, recently trading at a 1-year high of $47.34.

👟 On Shorts: Swiss sportswear company On (NYSE), known for its partnerships with Roger Federer and Zendaya, saw a 28% sales increase in Q2 2024, despite logistical challenges. However, 14.82% of its shares are currently shorted, making it one of the most shorted ADR stocks. While hedge funds remain bullish, analysts believe other sectors, like AI, may offer better returns.

🚗 Tesla Rallies: Tesla shares jumped 5% to $250, their highest in two months, driven by anticipation of strong Q3 deliveries (analyst estimate: 470k vehicles) and excitement around the upcoming Robotaxi Day (10 Oct.) Tesla’s stock is up 36% in three months, outperforming the S&P 500’s 5% gain. Despite challenges in Europe, Tesla’s robust performance in China and a Cybertruck ramp-up in the US are fueling optimism.

🏦 Scottish Bargain?: Despite a 4.5% gain year-to-date, Scottish Mortgage Investment Trust (LSE: SMT) is trading at a 10.3% discount to its net asset value, offering investors the chance to buy stakes in growth companies like SpaceX at a lower price. With interest rate cuts expected, this could reignite interest in growth stocks, making it an appealing option for investors.

WEALTH HACKER’S KIT

Balancing Concentration When Investing

In school, we're often told to focus on one thing – to specialise – because the world rewards mastery in a specific area. Yet when it comes to investing, the common advice is to spread your assets across a broad, well-diversified portfolio. Contradictory, isn't it?

What Is Diversification?

Diversification is a risk management strategy popularised by economist Harry Markowitz. It involves investing in a variety of assets that aren't closely correlated. The principle is straightforward: if one investment underperforms, others may perform well, balancing out your overall returns.

What Is Diworsification?

Coined by legendary investor Peter Lynch, "diworsification" refers to over-diversifying your portfolio to the point where it becomes less efficient. By spreading assets across too many investments, you might dilute potential returns and end up with a portfolio that underperforms compared to a more focused strategy.

Which Strategy Suits You?

• For Maximum Growth: Concentrating more on equities could offer higher returns but comes with increased risk.

• For Stability: Diversifying across various asset classes can provide more consistent, albeit potentially lower, returns.

Real-World Scenarios

During Market Downturns:

• 2008 Financial Crisis: The JSE All Share Index (ALSI) dropped by 23.23%, while South African bonds, represented by the average of the interest-bearing variable-term sector, increased by 14.97%. A diversified portfolio blending stocks and bonds would have softened the blow compared to a stock-only portfolio.

During Market Upswings:

• 2009 Recovery: The JSE ALSI soared by 32.13%, whereas bonds returned -1.69%. An investor heavily concentrated in equities would have reaped higher gains than one with a diversified portfolio.

Over the Long Term:

• From 2003 to 2022, the annualized return of the JSE ALSI was 13.34%, while bonds returned 9.88%. A diversified portfolio might offer more consistent returns over time but could underperform compared to a focused equity investment.

How Much Should You Invest in Equities?

A common guideline is the "120 Minus Your Age" rule:

1. Subtract your age from 120.

2. The result is the percentage of your portfolio to allocate to equities.

Example: If you're 40 years old:

• 120 – 40 = 80

• Allocate 80% of your portfolio to equities.

This rule suggests that younger investors can afford to take on more risk for potential growth, gradually shifting to more conservative investments as they age. 

However, it's essential to regularly review and adjust your portfolio to ensure it aligns with your evolving goals and risk tolerance.

And you can do that right now, in just a few minutes…

THE PEOPLE HAVE SPOKEN

We asked if you know your risk profile and investment goals, and most need a refresher…

🟩🟩🟩🟩🟩🟩 🤓 Yes, but I could really use a refresh! (38%)

🟨🟨🟨🟨⬜️⬜️ 📊 No, better check out those FinMeUp tools right now! (25%)

🟨⬜️⬜️⬜️⬜️⬜️ 📈 I know my profile, but I could use help tracking my goals and progress. (12%)

🟨🟨🟨🟨⬜️⬜️ 🤯 I didn’t even know you had to think about these things before investing! (25%)

No problem, though, you can get your risk profile assessed for free with Finimals.

And, then, for strategic wealth-building: you can set, track and manage your investments with Goals.