The Stock Market Pot is Bubbling

The latest US inflation figures have put a rocket under shares. They came in around 3pc annualised v 4pc annualised the previous month, down from a peak of 9pc in June 2022 and have led to a growing belief that US interest rates are close to peaking and may start falling in 2024. If only something similar would happen in the UK, where we are battling to escape from the dreaded wage price spiral that so affects semi-capitalist economies like the UK with their aggressive public sector trade unions. I am sure that is what many people with mortgages are hoping.

The clever Americans don’t have a public sector so they avoid this problem and yet their workers are much better paid.

Opportunities to buy stocks with strong buy signals coming after steep bear markets do not come often so it is important to take them. As in so many fields fortune favours the brave.

Talking about the brave, I must pluck up my courage and tell the lady upstairs that I love her only this may not be a good idea since she is married and her husband is 6’5″ and half my age. She is so adorable with a smile that would stop a regiment in its tracks! Don’t worry, I know I am crazy and very happy fighting with my ferocious wife.

Below I look at two shares with fabulous AI credentials, one is already a buy, has a fabulous chart and is a breakout away from becoming a must-own, the other already is a must-own, which I have described as the world’s most exciting share.

Microsoft at $350 Will be Off to the Races

This Microsoft chart looks amazing. Once these shares clear $350 they will be off and away and will definitely become a must-own, especially if the breakout is accompanied by news on the fundamental front confirming that an exciting ‘something new’ is happening – which I am pretty sure it is, see below.

These ‘something news’ are game changers, far more important than the boring poring over statistics that is the lot of stock market analysts, who so often conclude that a share is either correctly priced, a little cheap or expensive. Unfettered by all that nonsense we can allow the imagination to soar and that is what you need to capture the really great investments.

Microsoft is engaged in a massive pivot towards AI with its stake in OpenAI, the creator of ChartGPT and GPT-4. Microsoft is also incorporating generative AI into its Office suite of software, Word, Excel, PowerPoint and Outlook and much else besides like its cloud services business, Azure.

The World’s Greatest Share

I was listening to an interview with an uber-boffin from Nvidia, the world’s greatest share (see below), and he was saying that Microsoft Office’s rather boring software was transformed by generative AI and really brought to life for the first time in decades.

He also said that the compute power and software needed to make Natural Language AI happen was incredible. The App needs to understand the content, not just the words, and, until now, only Homo Sapiens Sapiens, nature’s ultimate creation, has been able to do that and this is happening with version 4; what could be coming. No wonder the geeks at Nvidia and elsewhere are beside themselves with excitement.

We worry that these guys are reinventing the H-bomb but whatever it is it is happening and with Nvidia at the heart of this latest explosive advance in the technology revolution and everybody else playing catchup, it is no wonder the shares are so strong.

The other interesting thing about this guy, doing the interview, who apparently invented CUDA, a key piece of networking software, is that although he seems to be high in the Nvidia hierarchy he started as a software engineer and he noted that Nvidia now employs more engineers in software than hardware and according to the interviewer would be hiring another 1,000 software engineers this year.

This ties in with the idea that Nvidia is transforming from a hardware business to a software business with a growing stream of recurring income. Such businesses are more highly valued by investors than companies that simply design and make semiconductors.

This is a fabulous chart for a fabulous business. It is also increasingly apparent that generative AI is an explosive ‘something new’ for the world but not for Nvidia which has been working towards this moment for 15 years. It is as though the pot has been simmering for 15 years and now is starting to boil. It is an incredibly exciting moment for the company and CEO and co-founder, Jensen Huang, is so excited it is obvious he can hardly sit still.

Everybody is looking frantically for other exciting semiconductor shares and for the next Nvidia but to me it is obvious, Nvidia is the next Nvidia and we, happy with what is in front of our noses, need look no further.

It was amazing listening to this guy from Nvidia being interviewed. He shared all the enthusiasm I have come to associate with founder and CEO, Jensen Huang, but the truth is that apart from a sort of generalised message that miracles are happening I did not understand either a word of what he was saying or even the questions he was so delighted to received from the packed boffins in the audience.

Nvidia Builds One of the World’s Most Powerful Brands

Nvidia is out there spreading the gospel of accelerated computing and AI partly because they are creating in Nvidia a brand to rival Apple and Tesla but also to attract those boffins they need to make all this happen. It is a virtuous circle of immense power.

I was also struck by what they are saying about supply. Demand is already exploding as we know from that staggering Q2 forecast for $11bn of revenue against the $7bn previously expected but they keep saying that demand is not going away but supply is going to IMPROVE in the second half (they don’t make the stuff they design so rely on suppliers). What does that mean for second half sales, which could keep astonishing expectations.

AI is beginning to be a bit like the boy who cried wolf. We have heard so much about it that we are becoming blasé about AI and its latest more powerful versions but that does not mean that it is not going to be huge and not going to change everything.

We need to ride this wave and watch out, to change the metaphor slightly, for the appearance of new stars surfing the wave. There are apparently thousands of start-ups embracing AI, partnering with Nvidia, Microsoft and others and some of these start-ups are going to join the stock market and be star performers.

One of them could be ARM, the Cambridge, UK company which Nvidia tried to buy and where it is now in discussions over becoming an investor as the company plans its IPO at valuations stretching up to $80bn.

Another fabulous chart for another of my must-owns is QQQ3. The last time the moving averages began to climb in tandem for this share they effectively kept climbing for five years over which period the price rose 33 times from eight dollars to $264 before 2022’s sharp correction. Can history repeat itself? Why not. It is all about technology and the rate of advance of technology is accelerating. So far the price is up 2.5 times from the low which is small potatoes for this share.

ETFs to Add Rocket Fuel to Your Portfolio

Even more exciting if you can buy them are TECL (technology times three daily rebalanced) and SOXL (semiconductors times three daily rebalanced).

I am such a gambler that I have sold all my leveraged shares and reinvested the whole lot in Nvidia where I now have a seriously scary/ exciting holding. I am just in love with Nvidia so I hope my love won’t let me down.

My theory about Nvidia, of whose business my understanding is sketchy at best, is that they are the spearhead of the greatest revolution, the technology revolution, ever experienced by mankind. This is why I expect the business to become incredibly valuable, far more valuable than it is today. My reasoning is that if I own a piece of that, even a tiny piece, I will do very well.

I am also able to own the shares in a spread betting account, unlike the leveraged ETFs which were in a share account, so if the miracle I am hoping for takes place my gains will be tax-free.

Strategy – You Don’t Have to Go Mad

A more measured approach to investing than my bet the ranch on Nvidia strategy, and which I may well adapt as time passes, is to have a mixed approach. Although I have promised myself that it is going to be do or die with Nvidia.

I think it is good to make some big bets and two I would recommend are Nvidia and QQQ3. You can also make some other bets like my other must-owns, so far there are four.

You can also buy the unleveraged versions of SOXL (SOXX) and TECL (XLK) and then customise your own leverage. If you don’t want any leverage buy them in a share account, perhaps with a tax wrapper or you can buy them as CFDs or Spread Bets with up to five times leverage.

As you can see both SOXX and XLK have great charts. The sequence seems to be big rise, sharp correction (2022), double whammy buy signal from the moving averages and Coppock, complete a significant pattern, which is where we are now, new high breakout and off to the races (still to happen).

Just as a heads-up there are short seller versions of TECL and SOXL. Don’t buy them by mistake.

Last but not least you can pursue the original Quentinvest strategy and buy everything and put together a broad portfolio which may be leveraged, unleveraged or any mix in between.

It is to help subscribers build just such a portfolio that I recommend a reasonable number of shares that look exciting.The world of US business is buzzing and there are plenty of exciting companies in which to invest and a large portfolio means plenty of action to keep you entertained.

Share Recommendations

Microsoft MSFT. Buy @ $337

Nvidia NVDA. Buy @ $439

Wisdomtree Nasdaq 3x Daily Rebalanced. QQQ3. Buy @ $128.18

Direxion Daily Technology 3x. TECL. Buy @ $53.90

SPDR Select Sector Technology. XLK. Buy @c $174

iShares Semiconductor. SOXX. Buy @ $514

Direxion Daily Semiconductor Bull 3x SOXL. Buy @ $25.69