May 2023 - Thanks, Nvidia!
In May we witnessed a remarkable resurgence of optimism and excitement for technology stocks, propelled by the sweeping AI wave. Nvidia (NVDA) achieved a momentous milestone, joining the exclusive $1 trillion market cap club. I benefitted from the hype and profited off a small trade. And finally by committing to the arbitrage play on Microsoft’s acquisition, which I have talked about for so long.
Overview
Unlabeled on the chart:
In Consumer: Starbucks (1.2%)
In Industrials/Manufacturing: 3M (0.6%)
In Technology: Activision Blizzard (1.2%), Adobe (0.8%)
Moves
On May 22nd I purchased a small stake in SoFi Technologies (SOFI) at an average price of $4.98
On May 23rd I sold my stake in SoFi Technologies at an average price of $5.30 marking a return of 6.43%
On May 25th I purchased shares in Activision Blizzard (ATVI) at an average price of $76.82
Performance
My portfolio value increased by 16.57% in the month of May, significantly beating the Dow Jones World down just slightly.
Dividend overview
| Name (Ticker) | Received | Amount (USD) |
| AbbVie (ABBV) | May 16th | $48.08 |
| Realty Income (O) | May 16th | $13.80 |
| Starbucks (SBUX) | May 29th | $10.51 |
| Total | May 2023 | $72.39 |
I received a total of $73.39 in dividends before taxes for May 2023, comparable to the same month last year at $71.63.
Commentary & Review
Thanks, Nvidia!
This month has been all about AI. On every earnings call and technology presentation in May, executives were beating the AI drum. The more times it was mentioned, the higher their stock would go. Alphabet (GOOGL) started off the month with a product presentation at Google I/O where they finally managed to impress with new AI features. Watching live, I noticed as CEO Sundar Pichai went on stage and said the magic word a hundred times, that investors in real time seemed to realize that Google’s leadership in AI for the past decade may actually be worth something. The stock is now up almost 40% YTD and Microsoft (MSFT) is no longer stealing all the AI glory - Just like Microsoft, Google will integrate AI into search, cloning New Bing with their Bard, and duplicating what Microsoft did with Copilot for Office with AI in Google Docs.
The AI trend continued with Unity (U) rallying on earnings day as their CEO explained the unique opportunity and advantage that AI presents in terms of RT3D and gaming. In truth, from a long-term perceptive view, this earnings quarter was a bit of a letdown for me, as Unity’s Create Solutions business unit only grew 7%, but still, I am glad to see positive movements short-term. I tweeted my full thoughts on the subject (Open for thread):
More interestingly, Unity stock is showing great resilience in the last couple of days, even when markets have seen short drastic spikes of nervousness and worry. I theorize this may have something to do with the pending announcement from Apple (AAPL) on June 5th where rumors have it that Unity may have a hand in the developer platform behind the long-hyped Apple XR headset. If there is any truth to this rumor, of which I heard long ago, it will be incredibly exciting for the company.
The big story in AI this month, however, is of course Nvidia’s earnings. Adjusting expectations for the next quarter from single-digit growth to mid-60s percent growth. I have never seen such as big movement in a large-cap stock ever before, as the green chip giant added the entire BNP of Greece to its valuation in a single second. As you may know, I sold out of Nvidia in November last year with a modest return, after holding steady since 2020 - In hindsight I naturally regret this now, but in my relatively short time holding the stock I experienced both a doubling of my investment and a tumble down to levels below my entry. While Nvidia is ironically fundamentally cheaper now than before its most recent earnings, it still trades a very high P/E. There is no one better to take advantage of this AI trend than Nvidia with their combined leadership in hardware design, pioneering the GPU, and in software design with their proprietary CUDA technology. That being said, the semiconductor stocks that I still thankfully hold, TSMC (TSM) and Broadcom (AVGO) both rode the Nvidia-AI-hype train jumping 10%+ on the day or day following Nvidia’s report. All things considered, I still feel really good about sticking with these two over Nvidia, as they still trade at much more reasonable valuations. TSMC is a much safer bet on AI, in terms of taking advantage of whoever ends up winning the AI race in the end, while Broadcom is simply an incredibly well-managed company - which also managed to beat expectations this quarter (as they always do).
A short-term trade on SoFi as US politicians agree on raising the debt ceiling
What kept the momentum going throughout May, moving on from Nvidia’s earnings, were that American politicians finally managed to agree on raising the US debt ceiling. Despite their differences, they managed to kick the bucket (issue) down the road for another few years - that is, until the next presidential election, avoiding inevitable doom. Had they not done so in time, global markets would have spun into chaos as the US would officially have to default on its debt. I was never really worried that they would not find a way to get this done in time, but I did hear that part of the compromise would entail President Biden having to give up on pausing payback on student loans. This is something he has been fond of doing ever since he came into office, gaining favor with his younger voter base - and one company that has suffered significantly over this since has been SoFi Technologies. SoFi is a modern bank, a FinTech, much like Lunar, the Scandinavian bank where I was once employed. But SoFi made their claim to fame by providing favorable student loans in the US, explaining why they have had a tough time recently. SoFI is much more than that today and has actually had a place on my Watch List for quite a while. While I am not ready to enter SoFi as a long-term holding quite yet, it did make for an interesting trading opportunity. I pulled of a successful trade, gaining 9% (before brokerage fees and exchange rates) in just 24 hours. Though, I should have stuck around for a few more days though, as the stock jumped another 20% as things became official.
A bet that competition regulators may also find something to agree on
Perhaps a little less out of the blue, in terms of starting a new position, I finally made good on my plans to take advantage of the Microsoft-Activision Blizzard merger. I have done extensive research since the deal was announced and shared here that I have high conviction that the deal will be successful. In mid-May, EU market regulators officially approved the deal - something which was to a large degree expected, given Microsoft’s remedies to their initial critique. The EU was mostly worried that Microsoft would behave in an anti-competitive way, by locking popular franchises such as Call of Duty, World of Warcraft, and Diablo behind an exclusive platform. But as I mentioned last month, Microsoft negotiated 10-year deals with many competing platforms, ensuring this would not be the case. The UK CMA remains an outlier, denying approval of the deal over other concerns, while nearly 40 regions, including China and South Korea as of this month, have given the green light. But as I consider the EU the toughest market regulator to convince, particularly concerning acquisitions in Big Tech, it was a hugely positive signal for me that they gave the OK. In fact, they did much more than that - Commissioner Vestager even expressed her excitement for how the deal may help support competition in gaming between the Western World and the East.
“We find solutions that keep the game fair for all players... That is our Call Of Duty.”
Rumors have since swirled online that key decision-makers in the CMA may have ties with Sony from past relationships and work arrangements. While there may not be much merit to these claims, it could help explain why the CMA seems to have a different stance than almost everyone else. I picked up a good chunk of shares in Activision Blizzard with great timing, following the confidence that the EU decision had given me. I have looked further at how weak the arguments of the CMA are and to what extent they are even able to control the situation. Microsoft may in fact be willing to simply stop offering Activision-Blizzard products in the UK, to see the deal through. Microsoft’s bid stands at a 25% premium over where I bought my shares, having offered $95 per share or nearly $69 billion for the company. Importantly though, please note that I do not plan to necessarily stick with this investment through any development. I have set an initial timeline of approximately one month for new developments to happen and bring regulators closer to a resolution. I understand that finalizing the deal may take much longer than that, but I hope that we might see a positive movement in June. The success of this deal may now end up benefitting me in two major ways: Through this short-term trade, making me a quick buck and restoring my faith in regulator decision-making, and secondly, by the way that it might strengthen Microsoft’s position in the future of gaming.
Watch List
My Watch List sorts stock by sector and notes are included for each one, describing my interest and reservations. The status indicates the likelihood of a position being added to my portfolio. ‘Watching’ means I just keep an eye on them, whereas ‘Top Pick’ means they are very likely to find their way into my portfolio at one point - ‘Under consideration' means somewhere in between, with notes offering some elaborating thoughts. Please note my Watch List is based on my own research and goals and is in no way a recommendation of what to buy.
Changes to the Watch List this Month:
This month I attended an event for young investors in Copenhagen. The presentation was led by Horizon3, a new Danish investment fund, focused on technology and disruption. I have been in touch with the two founders for a little while and attended their online launch presentation as well. They have impressed with a 40%+ return since going live just a few months ago and presented the case for two interesting stocks. One of these was NuBank (NU), a Buffett holding and a South American competitor to SoFi Technologies. Horizon3 shared a very interesting analysis and a few exciting prospects for the stock, which have led to me including it on my Watch List as an alternative to SoFi.
| Sector | Name (Ticker) | Status | Notes |
|---|---|---|---|
| Healthcare | Novo Nordisk (NOVO-B) | Top Pick | Strong innovator, previously owned, familiar |
| ARK Genomic Revolution ETF (ARKG) | Under consideration | Considering as an alternative for CRSP | |
| Merck & Co (MRK) | Watching | Casual interest, limited familiarity | |
| Medtronic (MDT) | Watching | Casual interest, limited familiarity, attractive dividend | |
| Industrials/Manufacturing | A.P. Møller - Mærsk (MAERSK-B) | Watching | Lacks ambition in electrification efforts |
| Elkem (ELK) | Top Pick | Cyclical industry, but well positioned to break out | |
| Otis (OTIS) | Under consideration | Potential dividend growth play, familiar | |
| Norsk Hydro (NHY) | Watching | Casual interest, limited familiarity, attractive dividend | |
| Lockheed Martin (LMT) | Watching | Ethical concerns, too expensive | |
| Corning (CLW) | Watching | Weakening moat, rising competition, familiar | |
| Consumer | McDonalds (MCD) | Watching | Strong brand, limited optionality |
| LVMH Moët Hennessy Louis Vuitton (MOH) | Under consideration | Strong leadership, performance, too expensive | |
| Costco (COST) | Top Pick | Incredible moat, leadership, too expensive | |
| Coca-Cola (KO) | Under consideration | Strong brand, stable giant, too concentrated, familiar | |
| PepsiCo (PEP) | Under consideration | Strong brand, well diversified, familiar | |
| Hasbro (HAS) | Watching | Strong product line, shaky mangement | |
| Energy/Utilities | Ørsted (ORSTED) | Top Pick | Strong positioning, leadership, familiar |
| Waste Management (WM) | Under consideration | Stable giant in a rock solid industry, limited familiarity | |
| NextEra energy (NEE) | Watching | Strong position, too concentrated, too expensive | |
| Enphase Energy (ENPH) | Watching | Rising star, limited familiarity, too expensive | |
| Technology | Embracer (EMBRAC-B) | Under consideration | Incredible acquisitions, not profitable, familiar |
| Sea (SE) | Watching | Core business weakening, innovator, just turned profitable | |
| Palantir (PLTR) | Watching | Amazing tech, highly dilutive, unprofitable, opaque | |
| Meta (META) | Watching | Strong leadership and userbase, undergoing big change | |
| Apple (AAPL) | Watching | Strong brand, loyal userbase, risk of disruption | |
| Mercado Libre (MELI) | Watching | Great execution, growing market, too expensive | |
| Squarespace (SQSP) | Watching | Familiar, too concentrated, too expensive | |
| Shopify (SHOP) | Watching | Innovator, well positioned, unprofitable | |
| Xiaomi (1810) | Watching | Fast innovator, China risk, previously owned | |
| Nvidia (NVDA) | Watching | Strong brand and leadership, too expensive, previously owned | |
| Finance | Coinbase (COIN) | Under consideration | Strong brand and leadership, unprofitable, previously owned |
| BlackRock (BLK) | Under consideration | Strong execution, exposed to the economy, attractive dividend | |
| Whitehorse Finance (WHF) | Watching | Attractive dividend, strong execution, high risk | |
| SoFi Technologies (SOFI) | Watching | Strong leadership, innovator, unprofitable | |
| NuBank (NU) | Watching | Great execution, interesting market opportunity | |
| JP Morgan Chase (JP) | Watching | Stable giant, overlapping industry with holding | |
| Manulife Financial (MFC) | Watching | Stable giant, attractive dividend, limited familiarity | |
| Real Estate | VICI Properties (VICI) | Top Pick | Strong leadership and execution, attractive dividend, too concentrated |
| Digital Realty (DLR) | Watching | Good positioning, attractive dividend, limited familiarity |
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
