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AI factories

29 August , 08:38 am

Market scorecard

US markets extended their rally yesterday with the S&P 500 closing above 6 500 points for the first time. Revised GDP data showed the US economy grew faster than expected in the second quarter, expanding at an annualised rate of 3.3%. The rally would probably have been even more impressive if it were not for concerns about inflation. There will be a fresh read on that out today.

In company news, Dell dropped 5.3% after-hours despite good numbers on solid AI server demand. Elsewhere, cloud-based data storage company Snowflake jumped 23% after reporting predictably strong sales momentum. Finally, bowling chain operator Lucky Strike Entertainment got clattered (down 1.5%) after a weak business update.

Izolo, the JSE All-share closed down 0.14%, but the S&P 500 rose 0.32%, and the Nasdaq was 0.53% higher. More records, very nice!

Our 10c worth

Byron's beats

The biggest and most important company in the world, Nvidia, reported results on Wednesday night, and they were once again outstanding. Earnings per share grew by 54%, revenues increased by 56% and a $60 billion share buyback program was approved.

The stock now trades at around 30 times forward earnings. The current price-to-earnings ratio is 42, with those earnings expected to grow by 42% per annum for the next 2 years. If you like using a PEG ratio (PE divided by growth) for valuing a company, then you are sitting at 1, which is apparently the "correct" level.

The Chinese situation is confusing. They did not sell any of the new H20 chips designed for Chinese consumption. They are waiting for new rules from both the US and the Chinese governments, so they took all potential sales to China out of their forward guidance. This seemed to be the reason the share price dropped slightly after the release.

Data centres, or as Nvidia likes to call them, "AI factories", were the star of the show again, making up 86% of sales. Because Nvidia remains so far ahead of the competition, when they launch new products, clients like Microsoft, Meta, Amazon, and Google are forced to buy them or risk being left behind by the competition. It is quite incredible how they manage to release new products with such improved performance each time. For example, Blackwell (the latest chips in circulation) is 50 times more energy efficient than Hopper and is boosting training speeds by 7 times. The next generation, called Rubin, will be another big leap forward.

Management estimates that the AI infrastructure boom is a $3-$4 trillion opportunity. The cloud providers are spending $600 billion a year on capex, so that actually sounds like a lowballed estimation. I wouldn't be surprised to see Nvidia crest a $10 trillion valuation in the not-so-distant future. This stock still has legs.

One thing, from Paul

Most people live where they were born, and make the best of it. Despite all the hype about immigrants, less than 4% of the global population resides away from the country where they were raised.

So, where do you live, and why? What do you value about your hometown or city? Every place has its strengths and weaknesses.

An acquaintance of mine was talking about Norway, where he'd worked for a while. He said, "if you don't count the horrible winters, Norway is a great place to live." Then he mentioned Norwegian novelist Karl Ove Knausgaard, who wrote in his memoirs how much he resented all the time spent cleaning and cooking, and running errands, which prevented him from writing or doing more pleasant things. In Norway, house help is very expensive.

Elsewhere, I saw this interesting observation about China. "I think China has been reasonably successful over the last 50 years in both growing the pot and lifting people out of poverty. However, it's a dictatorial police state, controlled by an elite party and leader with little to no accountability to the nation. I'll take freedom, bedlam, chaos, inequality, poverty, and crime any day over a police state. I want to live in reality, not some twisted "utopia" of meek conformists."

Finally, an American friend of mine, enquiring about my life in Johannesburg, was appalled to hear that we live in a residential setup with a full-time guard at the gate. To him, that sounded awful, but to me it seemed like a big luxury. We sleep well at night, and having a person at our entrance is great for receiving online shopping deliveries.

Anyway, I like living in South Africa, and Johannesburg in particular. I was born just up the road in the Hillbrow Hospital, and at that time my parents lived in Orange Grove.

Of course, this place is nicest for those with lots of money. The people are wonderful, other than the odd one who wants to kill you. The urban environment is well-developed but currently decaying. Our great climate, lots of help, and freedom of speech add up to a very high standard of living.

Bright's banter

The anatomy of a con hasn't changed much since Charles Ponzi mailed his first "guaranteed" profit slips in 1920. What's changed is the speed and scale. Today, the scam arrives not by post but by WhatsApp group, Telegram channel, or a very convincing email that looks like it came straight from your bank. Same playbook, shinier packaging.

The common thread? They sell certainty. Whether it's "guaranteed" 15% returns, a "can't miss" crypto scheme, or an "exclusive" AI stock tip, the scammer's first move is to switch off your skepticism with the sweet sound of inevitability. Real investing is built on probabilities, patience, and pain tolerance. Fake investing is built on promises.

Here's the quick checklist. One: urgency - if someone says "act now or miss out," you should walk, not run. Two: opacity - if the explanation is either so complex you can't follow it or so simple it sounds like magic, be suspicious. Three: social proof - scammers love dangling a neighbour, cousin, or celebrity "already in." Remember, Bernie Madoff's greatest sales tool wasn't performance, it was the names on his client list.

And the most practical rule of all: legitimate investments don't mind being poked, prodded, and verified. If the person on the other side gets defensive when you ask for an FSP license, credentials, or just time to think - congratulations, you've just saved yourself some money.

Good investments don't need to be sold to you in a rush. They're usually sitting in plain sight - Apple, Microsoft, or a low-cost ETF - boring enough to be ignored by scammers, but powerful enough to build wealth. The con thrives on excitement. The truth thrives on time.

Signing off

Asian markets are trading mixed this morning, with weakness in mining and financial stocks offset by gains in energy and tech. Shares in Brisbane-based data centre operation NextDC jumped nearly 17% after posting strong full-year results. It's clearly a good time to be in that business.

In local company news, Stadio reported solid half-year results with revenue up 16% to R957 million, profits climbed 24% and student numbers increased 8% to 54 487.

The Rand is trading at around R17.70 to the US Dollar.

US equity futures are pointing towards a positive open pre-market, as we head into the last trading day of the month. Monday will be a public holiday in the US, it's their Labor Day.

Have yourself a good weekend.