February 17, 2024

U.S. STOCKS THAT WILL MOST BENEFIT FROM THE ARTIFICIAL INTELLIGENCE REVOLUTION

VALUATION OF U.S. MAJOR TECH STOCKS

Advanced Micro Devices, Alphabet, Amazon, Apple, Applied Materials, Broadcom, Intel, Meta, Microsoft, Nvidia, Palantir Technologies, Qualcomm, Super Micro Computer, Tesla, Texas Instruments

Data as of February 16, 2024
Yield on U.S. 10-Year Treasury Note: 4.28%
P/E Ratios in descending order
g = Earnings growth rate per annum

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- Companies above the regression line are overvalued : Advanced Micro Devices (AMD), Broadcom, Apple, Qualcomm, Microsoft, Texas Instruments.

- Companies on the regression line are fairly valued : Amazon, Tesla.

- Companies below the regression line are undervalued : Nvidia, Super Micro Computer, Meta, Alphabet, Intel, Palantir Technologies, Applied Materials.

Nvidia could rise from $726 up to $1850 (+155%) and Super Micro Computer from $803 to $1900 (+135%) within one to two years if the earnings forecasts are materialized.

Most data are from Yahoo Finance https://finance.yahoo.com/quote/TXN?p=TXN&.tsrc=fin-srch

Simulations on earnings growth rates can be conveniently made by using this program for instant calculations : https://www.stockinternalrateofreturn.com/instant_calculations.html

This approach is based on the concept of the Potential Payback Period (PPP). The PPP is a mathematical adjustment of the P/E Ratio according to the expected earnings growth rate “g”, with a given interest rate “r”.

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More explanation of the PPP at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

The end product of the approach is represented by the regression line showing the relationship between the PPP and the Beta as a risk factor. This regression line is a synthetic stock selection tool that combines several fundamental factors that are essential in the determination of the stock value: the P/E ratio, the company’s profit-making capacity (or earnings potential) through the earnings growth rate, a long-term risk-free interest rate and the Beta as a measure of the risk associated with the stock.

This dynamic approach is based on a system of relative prices where the value of each stock is determined relative to that of other stocks at a given moment.

Rainsy Sam
Investment manager
Former Cambodian Finance Minister

February 15, 2024

COMPARISON OF WORLD STOCK MARKETS

SINCE THE BEGINNING OF 2024, JAPAN AND TAIWAN STOCK MARKETS, WHICH WERE IDENTIFIED AS PRESENTING THE HIGHEST “RISK PREMIUM” AT THE END OF 2023, HAVE ACHIEVED THE BEST PERFORMANCES

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A similar table with data as of December 28, 2023 was posted last year, with relevant explanation, at https://www.stockinternalrateofreturn.com/Stock-Market-Comparison.html

A stock's Internal Rate of Return (IRR) is to be compared with the yield of a long-term risk-free bond, with the difference between the two rates being the risk premium specific to each stock or stock market as a whole. The risk premium may not be fully justified. At a given moment, it may be considered too high or too low, leading to corrective movements.

The concept and the advantages of the PPP and the IRR are explained in detail at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

The reliability of these forecasts based on the concepts of PPP and IRR depends on the reliability and accuracy of the forecasted data entered into the model, particularly the projected earnings growth rate for the next 12 to 36 months. Any revision of earnings outlook in a stock market will lead to a re-evaluation of that market compared to other stock markets through a modification in the risk premium ranking. Political risk is put aside in this analysis which supposes “all else being equal”.

P/E Ratio = PER = Price Earnings Ratio.
g = Projected earnings growth rate for the next two or three years.
r = Long-term interest rate on a risk-free bond (such as the U.S. 10-Year Treasury Note).
PPP = Potential Payback Period. This is the time needed for the investment in the purchase of a stock to be "potentially paid back" through future profits progressing at rate "g" and discounted at rate "r".

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IRR = Internal Rate of Return. This is the discount rate that must be applied to future profits made over the period corresponding to the PPP for these profits to equalize the current stock price. The IRR formula is directly derived from the PPP.

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See mathematical demonstrations at https://www.stockinternalrateofreturn.com/Mathematics.html

Source of data: The figures for P/E Ratio (excepted for France’s) and projected earnings growth rates "g" come from Simply Wall St at https://simplywall.st?via=rainsy Because of continuous upward earnings revisions in the USA, the expected average earnings growth rate for that market (S&P 500) is revised from 15% to 20% per annum.

Rainsy Sam

February 11, 2024

”SUPER MICRO COMPUTER” SECOND MOST ATTRACTIVE AI STOCK

Among artificial intelligence-propelled stocks, “Super Micro Computer” is the second most attractive after “Nvidia”. This conclusion is based on the Potential Payback Period (PPP) which is a tool that can be used to help evaluate and compare AI stocks with very high P/E Ratios.

Data as of February 09, 2024
Raw data from Yahoo Finance
 https://finance.yahoo.com/quote/TXN?p=TXN&.tsrc=fin-srch
Yield on U.S. 10-Year Treasury Note: 4.16%
P/E Ratios in descending order. The P/E Ratio varies from 1 to 15, but the PPP which adjusts the P/E Ratio according to the earning growth rate, only varies from single to double.
g = Earning growth rate per annum

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Instant calculations at https://www.stockinternalrateofreturn.com/instant_calculations.html

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February 10, 2024

“TEXAS INSTRUMENTS” WITH A P/E RATIO OF 23, IS ACTUALLY MORE EXPENSIVE THAN
“SUPER MICRO COMPUTER” WITH A P/E RATIO OF 58

For better stock comparisons the P/E ratio (PER) should be replaced with the Potential Payback Period (PPP) which is a mathematical adjustment of the P/E Ratio according to the expected earnings growth rate “g”, with a given interest rate “r”.

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Instant calculation of the PPP at https://www.stockinternalrateofreturn.com/instant_calculations.html
More explanation of the PPP at https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

CONCRETE EXAMPLES

With the above formula we can rigorously prove that “TEXAS INSTRUMENTS” with a P/E Ratio of 23 is actually more expensive than “SUPER MICRO COMPUTERS” with a P/E Ratio of 57, and also more expensive than “NVIDIA” with a P/E Ratio of 95. This is due to the differentials in expected earnings growth rates: +10% for “TEXAS INSTRUMENTS”, +40% for “SUPER MICRO COMPUTERS” and +50% for NVIDIA, to be very cautious for the two last stocks.

Data as of February 09, 2024
Source: Yahoo Finance https://finance.yahoo.com/quote/NVDA?p=NVDA&.tsrc=fin-srch

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THE POTENTIAL PAYBACK PERIOD (PPP) :
A TOOL TO HELP EVALUATE AI STOCKS WITH VERY HIGH P/E RATIOS

Data as of February 09, 2024
Raw data from Yahoo Finance https://finance.yahoo.com/quote/TXN?p=TXN&.tsrc=fin-srch
Yield on U.S. 10-Year Treasury Note: 4.16%

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Instant calculations at https://www.stockinternalrateofreturn.com/instant_calculations.html

Rainsy Sam

February 07, 2024

SIMULATION ON NVIDIA STOCK

NVIDIA STOCK REMAINS VERY ATTRACTIVE WITH A PRICE TARGET OF $1,200
EVEN WITH A MORE MODERATE EARNINGS GROWTH RATE
PROJECTED FOR THE NEXT FIVE YEARS

(+50% per year instead of +70% in our previous analysis, or even +100% for many analysts)

NVIDIA Earnings growth rate
Source: Yahoo Finance https://finance.yahoo.com/quote/NVDA/analysis?p=NVDA

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See more details on the PPP at
https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html

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Determination of the Price Target for NVIDIA stock on the basis of the above Regression Line

Earnings growth rate (g) = + 50% per annum (instead of +70% in our previous analysis).
Interest rate (r) = 4.02% (no change).
Beta 5Y Monthly) = 1.68 (no change).
PPP based on the Regression Line = (-1.2635 X 1.68) + 13.75 = 11.63 (instead of 8.20 in our previous analysis).
P/E Ratio based on the Regression Line = 157.5 (instead of 388 in our previous analysis).
EPS = 7.61 (no change).
Price Targe = 157.5 X 7.61 = $1.198 (instead of $2,952 in our previous analysis).

Sam Rainsy

February 06, 2024

AMONG THE "MAGNIFICENT SEVEN" U.S. GROWTH STOCKS
NVIDIA REMAINS THE MOST ATTRACTIVE
IN TERMS OF POTENTIAL PAYBACK PERIOD (PPP).
THE PPP IS A P/E RATIO ADJUSTED ACCORDING TO THE EXPECTED EARNINGS GROWTH RATE

Data as of Friday, February 02, 2024
Yield on U.S. 10-year Treasury bond : 4.02%

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See more details on the PPP at
https://www.stockinternalrateofreturn.com/Advantages-of-ppp-irr.html


NVIDIA’s "objective price" can be determined from a regression line as follows:

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DETERMINATION OF THE "OBJECTIVE PRICE" FOR NVIDIA STOCK
RELATIVE TO SIX OTHER STOCKS AMONG THE "MAGNIFICENT SEVEN"
BASED ON THE ABOVE REGRESSION LINE WITH FORECASTS AVAILABLE AS OF FEBRUARY 02, 2024

(MOST FIGURES ARE FROM YAHOO FINANCE https://finance.yahoo.com/quote/NVDA/)

Formula of the Regression Line: PPP = – 1.8879 Beta + 14.321
NVIDIA’s Beta (5Y Monthly) = 1.64 ——> PPP = 11.2248 ——> P/E Ratio = 388
EPS = 7.61 ——> Price = 2,952 versus 661.60 on February 02, 2024 (X 4.46 times)

Rainsy Sam
Membre de la SFAF
Ancien Ministre des Finances du Cambodge