AI chip-maker Nvidia is a Citywire AAA-rated Elite stock held by many leading fund managers. In this video, Stephen Anness, manager of Invesco Select Trust’s global equity income portfolio (IVPG ), relates how he bought the soaraway company at its 2022 low, saw its shares double and then moved on.

This is the second excerpt from our virtual event with Invesco Select last month. If that’s whetted your appetite, you can watch the previous excerpt or the whole Big Broadcast.

Can’t watch now? Read the transcript

Gavin Lumsden:

So, you’ve taken profits on Nvidia. Have you sold out completely, but held on to Broadcom?  Is it a cheaper version of Nvidia?

Stephen Anness:

Yes, we have taken profit in Nvidia. Full disclosure, we sold that too early. I think with hindsight, we didn’t expect the level of positive earnings revisions that Nvidia has seen. I don’t think anybody did, to be fair. The change in the expected level of earnings and profitability from that business has been staggering. Driven by AI, which was a quite nascent thing relatively recently and has now become the thing. So, I think it’s probably worth stepping back a touch and saying, when did we first get into Nvidia? Particularly in an income fund. That happened in the summer of 2022. Nvidia fell about 60% from the end of 2021 to the summer of 2022. There were lots of fears around the data centre business and the gaming business at the time.

Nvidia has done this many times in the past. It’s been through air pockets in its cycles. I think it’s fallen over 40% five or more times, in the last 20 years or so.

So this does happen in this kind of industry. So that gave us a great opportunity. The way we look at things, we have all of the stocks that we cover and we have the dividend, the valuation, our expected return. Effectively, as the Nvidia share price went down in 2022, it went up our rankings in terms of relative attractiveness. So, we built our position up quite quickly in that summer. Now, with the shares then more than doubling quite quickly into 2023, we sold the position because we felt the valuation was OK, the total return was reasonable, but we had other ideas that we felt offered greater upside.

As I mentioned, there was a degree of correlation between Nvidia BE Semiconductor, Broadcom, and a couple of other things that we own. So, we exited the position. Now, Broadcom I touched on earlier. There is a good piece of the business which is AI-related. It’s broadly also, I would think about it as an infrastructure business in terms of data transfer around the world. I think Broadcom talked to 99.9% of all internet and data traffic at some stage touching one of their chips in its journey. So obviously incredibly well-embedded business. Think about that aspect of the business. Then you have the AI and then you have a software business as well, which provides a very stable set of cashflows. They recently acquired VMware which has recently closed. So that’s a business on a 5.5% free cashflow yield, attractive dividend, which has grown nicely over the years. We felt that was actually something which we were more comfortable maintaining the position.