Sectors: Technology

Just an incredibly poor/left-field FY25 outlook provided by Audinate yesterday, and while FY24 was good, and slightly above expectations, that means very little for a company trading on a growth multiple that is going backwards in FY25. Casting our minds back to the 1H24 results, they reported revenue up 48% and earnings a whopping ~70% ahead of expectations driven by strong sales and better-than-expected margins.

Big tech is not dead, and the sharp pullback in this area of the market will create opportunities to improve the quality of our exposures, so today’s update is about sharpening the pencil in the International Equities Portfolio.

We covered NVDA US here concluding in early July: Taking the mid-point of the price implied by the average PE, which is $US121 and the price implied by the average EV/Rev multiple, which is $US88, we get a price point of US$104.50 based on current consensus numbers. Therefore, accumulating NVDA ~$105 makes sense, and leaving room to add to a position should it fall into the ‘cheap’ zone nearer $US90. Buying above $120 does not make sense based on what we know now.

We covered Alphabet here, writing in July that if we agree that AI is a fundamental change in the world and we’re only in the initial stages of its evolution, then we must think about GOOGL as a play on this theme. We concluded that; It will not take a significant pullback in GOOGL for the risk/reward profile to stack up, noting that we’ve been too conservative in our approach to the stock over the past year. MM likes GOOGL into a 10% pullback.

AI giant Nvidia (NVDA US) has corrected almost 30% from its June high as its valuation has been reined in, along with many other US tech names. Interestingly, it led the tech downturn but was relatively stable last week

SEK rallied throughout Thursday, fighting the tide as the market surrendered the majority of its early gains; the online employment stock outperformed the market finishing the day up +2.6%. We regard SEK as a quality business, but it hasn’t figured on MM’s Hitlist due to lacklustre returns from overseas expansion, the weakening labour market and concerns that the RBA could again lift interest rates.

We started reducing our exposure to XRO in mid-July on valuation grounds, and we are again considering going one step further and switching to fellow tech name NXT. So far in 2024, both stocks have rallied +23%, but we now see more upside from the data centre developer as opposed to the digital accountancy business, with the recent 27% correction in the highly correlated AI giant Nvidia affording us a better entry into NXT, i.e. AI requires huge amounts of energy and storage which NXT delivers with its data centres

Q2 earnings were released after market this morning, and the results were mixed; the shares are trading down ~5% after hours.

Revenue for the quarter was an impressive $64.73bn, up 15% year on year and slightly ahead of consensus of $64.39bn, while earnings per share (EPS) at $2.95 was a touch ahead of $2.93 expected – no dramas there.  The issue the market will focus on is a slowdown in their Cloud business, which includes Azure, Windows Server, Nuance, and GitHub. Combined, they generated $28.52bn in revenue, below the $28.68bn expected, implying growth of 29%, which was below the 31% tipped.