Pitched as the ‘most important stock’ of the year by Goldman Sachs Strategist, Scott Rubner, up until recently Nvidia shares were up 785% since the start of 2023, boosted by demand for its microchips, seen as the gold standard in the field of Artificial Intelligence.
Nvidia briefly became the world's most valuable company in June at just over $ 3,3 trillion, with a stock rise of 12.7%, before Microsoft regained the title shortly after. This makes Nvidia the first ever semiconductor business to take the title. The company is part of the ‘Magnificent Seven’ (alongside Microsoft, Apple, Amazon, Meta Platforms, Tesla, and Alphabet, the parent company of Google) which have ridden a wave of investor enthusiasm surrounding AI and big tech. Five of these companies drove over 60% of the increase in the S&P 500 in June, now sitting at near-record highs, with a year-to-date gain of 15.3%.
But it wasn’t always the case. Nvidia saw a 52-week low in 2022, due to a deterioration in the PC market. The company, famous for making graphics cards for video games, can attribute much of their recent success to diversifying its product range into manufacturing GPUs (Graphics Processing Units) for processing advanced graphics and visuals much faster than traditional GPUs. GPUs are now a critical component in Generative AI, arguably one of the most innovative technologies since the internet itself. The excitement surrounding the technology has sparked a battle between some of the world’s biggest companies to build new AI products, such as ChatGPT.
Gold is a key component of these GPUs or microchips. Despite its monetary value, gold's chemical properties make it indispensable in GPU manufacturing. Whilst you’d think that manufacturers would try and minimise its use due to the cost, this doesn’t appear to be the case for Nvidia, for whom it remains extremely useful due to its chemical properties.
It’s hardly surprising then, that gold has increased in value by over 12% since last year, hitting record highs above $2,400 per oz in the first half of 2024. Whilst all markets experience volatility, for the past 25 years gold has risen steadily in value and has historically been seen as a stable hedge against economic instability or recession.
Whilst it may be tempting to go after these big-ticket stocks and cash out when the going gets good, research shows that investing in stocks and holding them is one of the best ways to grow wealth over the long term. Long-term stock investments tend to outperform shorter-term trades by investors attempting to time the market. Look at Apple, for example, one of the most popular stocks on Wall Street.
Apple went public on 12th December 1980, at $22.00 per share. If you had invested $10,000 in Apple stock back in 1980, you would now be sitting on a substantial nest egg of over $14,000,000. However, the company has experienced its fair share of poor trading performances over the years, too. On 29th September 2000, Apple shares saw their worst ever day, with a one-day drop of 51.89% to $13, from over $26 the day prior, and it was several years before they made a recovery.
Whilst these turbulent periods can seem daunting, peaks and troughs are a natural part of market cycles, and those prepared to play a waiting game often reap the rewards. Looking ahead to 2029, Apple’s shares are predicted to double.
The tech and gold sectors are not the only ones to watch of course. Stocks which typically fare better than others during a recession include growth stocks, defensive sectors, utilities, quality blue chip stocks, and real estate. The healthcare and consumer staples sectors are also predicted to continue to outperform in 2024 and beyond.
Remember, stock market investments not only provide the potential for regular income and return on investment but they can also be used as collateral to secure financing or other forms of capital. Securities-backed lending allows you to use your investments as collateral to access cash or capital without having to sell your investments early.
‘Technology is a growing industry and one we’re monitoring closely. Our overall aim is to get the best possible terms we can for our clients, however, overreliance on one stock can bring a level of risk and we prefer to maintain a balanced approach. These big tech stocks are booming, and the long-term forecast looks positive, so it is always worthwhile considering if disposal can be avoided when seeking to raise funds, so potential longer term gains can be captured. We always consider a long-term strategy for our clients based on their individual circumstances and risk appetite.’
Islay Robinson, Founder & CEO, Enness Global
The views and opinions expressed in this piece are those of the author and do not constitute advice or a recommendation. They do not necessarily reflect the official policy or position of Enness and are not intended to indicate any market or industry viewpoints, or those of other industry professionals
Islay Robinson, a founder of Enness, is widely regarded as one of the UK's leading mortgage brokers. He has been instrumental in delivering some of the most complex and high value mortgages in the UK.
