Kim Bolton, president and portfolio manager of Black Swan Dexteritas

FOCUS: Technology stocks

Top Picks: Nvidia, TSMC, Arm Holdings

MARKET OUTLOOK:

Market volatility continued into February, influenced by fourth quarter earnings, guidance reporting, and macro economic announcements providing direction for interest rates. While some software application companies are starting to offer valuable AI products and services to their end-users, there are still massive amounts of AI infrastructure capex being forecast for 2025 and 2026.

Market participants used the volatility to buy growth stocks on dips in the first half of February. In the second half, interest rates moved lower as stocks backed away from the highs, helped in part by weaker economic readings and U.S. Federal Open Market Committee (FOMC) minutes suggesting the end of quantitative tightening (QT) could be closer than previously thought. Last Friday’s S&P flash PMIs and Michigan releases underscored to some that the uncertainty generated by Donald Trump’s negotiating tactics may be starting to seep into the real economy, causing activity and decision making to freeze as participants wait for policy clarity. The looming Congressional reengagement over the budget and debt ceiling are additional points of uncertainty as debt hawks and other Republican factions will need to be pacified. Various central bankers spoke directly to that issue, indicating things will largely need to remain status quo until there is more clarity around tariffs, DOGE, and immigration.

The highlight of this week’s earnings calendar will be the world’s most valuable chipmaker, Nvidia on Wednesday. The market expects about US$38.1 billion in sales and $0.84 in normalized earnings per share (EPS). The top-line number will be especially important here, as the market will look for signs of continued growth, specifically in the lucrative enterprise AI GPU segment. While Nvidia guided to only $37.5 billion in sales for the fourth quarter, Nvidia often sandbags its forecasts, making it easier to provide better-than-anticipated results for the AI market leader. Therefore, Nvidia could provide $38-39 billion in sales while potentially delivering a minor beat on the EPS side.

Guidance is particularly crucial, as the market wants to see continued robust demand for Nvidia’s AI products despite the recent DeepSeek and other concerning events. Despite the high expectations, your BSD Team anticipates that Nvidia can provide another constructive earnings report, which should support its stock price trajectory and the trajectory of other high-quality AI picks.

While the market searches for the next fundamental catalyst or technical signal, your BSD team will continue to trim those securities that are achieving their respective intrinsic values, and buy those technology growth stocks that exhibit longer, more lucrative investment runways. The hedging overlay will always be an important tool to protect your capital in bearish markets, and also an important tool to be “dialed down” in bullish markets.

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TOP PICKS:

Nvidia (NVDA NASD)

Nvidia remains the greatest secular growth story in the semiconductor business, riding major tailwinds including the transition to the GPU in the datacenter, gaming, edge computing, autonomous vehicles, and AI.Its cloud business should see continued secular strength over the coming years as GPU penetration in the datacenter increases, and the workloads for GPUs expand in the datacenter. Nvidia’s revenues are concentrated in the gaming and data center verticals, but they are poised to make gains in the professional visualization, and automotive verticals as well.

It holds about an 80 per cent market share in the discrete GPU market and is partnering with leading cloud service providers to offer AI-as-a-service that provides enterprises access to NVIDIA’s world-leading AI platform.

Taiwan Semiconductor (TSM NYSE)

TSMC is the undisputed market leader of semiconductor foundries, with 50.5 per cent market share. It maintains its leadership in the foundry market with advanced process technologies and huge economies of scale that competitors can’t come close to match.

Steady migration to next-generation process nodes, such as N3 in 2023, N2 in 2025, new specialty manufacturing capacity and 3D-packaging technology, ensure the company’s long-term domination of the contract-chipmaking market, and could help its long-term gross margin stay in the 53-60 per cent range, far above peers.

Arm Holdings PLC (ARM NASD)Arm Holdings plc is a British multinational semiconductor and software design company headquartered in Cambridge, England. Founded in 1990, Arm specializes in designing central processing unit (CPU) cores that implement the ARM architecture family of instruction sets. These designs are widely licensed to semiconductor companies and original equipment manufacturers (OEMs) across the globe.

Arm develops and licenses high-performance, energy-efficient CPU designs, including the Cortex-A series for application processors, Cortex-R series for real-time applications, and Cortex-M series for microcontrollers. The company offers Mali and Immortalis GPU designs, with the latter supporting hardware-based ray tracing for advanced graphics applications. Arm’s Ethos NPUs are designed to accelerate machine learning and artificial intelligence workloads in various devices. Arm provides system IP products, including memory controllers, interconnects, and other on-chip peripheral components, facilitating the development of complex system-on-chip (SoC) solutions. Arm’s technologies are utilized across diverse markets such as automotive, computing infrastructure, consumer electronics, and the Internet of Things (IoT).

PAST PICKS: February 21, 2024

ASML Holding NV (ASML NASD)

• Then: US$908.21
• Now: US$751.53
• Return: -17%
• Total Return: -16%

Canon (CAJPY OTCMKTS)

• Then: $28.11
• Now: $34.39
• Return: 22%
• Total Return: 26%

Tesla (TSLA NASD)

• Then: US$194.77
• Now: US$299.34
• Return: 54%
• Total Return: 54%

Total Return Average: 21%