(Bloomberg) – As Nvidia Corp. (NVDA) found itself the target of a deep selloff earlier in the year, Impax Asset Management quietly took a moment to build a stock it had long regretted not owning.
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Ian Simm, chief executive officer and founder of the $50 billion London-based asset manager, said he and his team had been looking for an opportunity to correct what he had known as a wrong call a few years ago, which meant missing out. about Nvidia’s astonishing 800% rally since the start of 2023.
“We just underestimated the market potential of their product,” Simm said in an interview. Impax has been looking for ways, but Nvidia is “expensive.” That is, “until there is a sale.”
The decline in Nvidia’s stock price earlier this year resulted in a $1 trillion drop in market value. Although much has been recovered, Simm says the company’s current valuation of more than $3.2 trillion understates what it’s really worth.
Founded in 1998, Impax has made a name for itself as a giant among asset managers focused on the transition to a more sustainable economy. Simm said the goal should be aligned with making money for the clients. But lately it’s been a tough sell.
Over the past few years, the spike in interest rates, the energy crisis and the rise of the so-called Magnificent Seven technology behemoths have turned green investment into a losing bet. Impax’s own share price is down nearly 30% this year, while the S&P Global Clean Energy Index has lost more than 10%. The S&P 500, meanwhile, is up more than 20% over the same period.
Earlier this week, Impax reported results showing a gain in registered equity of £5.3 billion ($6.9 billion) for the fiscal year that ended on September 30.
A few years ago, Simm said there was a “huge debate” at Impax about the merits of stacking up to Nvidia. The case for artificial intelligence was “speculative at the time,” he said. At that time, the asset manager concluded that Nvidia’s technology was largely limited to the gaming industry and therefore the asset manager decided not to invest.
“Honestly, we have underperformed for the last few years in our main strategies because we have more growth-at-a-reasonable price, staying away from the momentum and hype around mega-cap technology investment,” he said.
As Nvidia’s stock price fell in June, Impax more than tripled its stake in the company to 4.9 million shares by the end of the month from 1.4 million shares at the end of the first quarter, according to data compiled by Bloomberg and confirmed by Impax. .
Simm said Impax still considers Nvidia undervalued when taking into account how the boom in artificial intelligence is expected to drive demand for its chips.
Simm said that holding Nvidia, which like other tech giants needs to consume a lot of energy to grow, also makes an investment from a climate perspective. As energy demand continues to increase, Nvidia and other companies developing more efficient models will be better for the environment, he said.
Nvidia’s Blackwell chips, which began rolling out to customers this year, need 3 gigawatts of power to develop the OpenAI GPT-4 software, the company said at an event earlier this month. Ten years ago, the process required 5,500 gigawatts, the chipmaker said.
“Nvidia’s ability to save energy makes it more valuable,” Simm said.
Impax holds Nvidia in five strategies and funds. This includes the Global Opportunities portfolio, which is limited to 40 stocks and includes companies that have diversified business models, operate in high-growth markets and are “not favored for any reason,” Simm said. Microsoft Corp. (MSFT) is included because Impax thinks it is undervalued “in the context of the secular trend towards the rest of AI,” he said.
In fact, “the entire industrial area” now appears to be undervalued, Simm said. That may be replaced by a “soft landing in the US” seems increasingly likely, which helps restore confidence, he said. The cost of capital is down and consumer sentiment is stable, so equities “look more attractive.”
(Added the CEO’s comments in the eighth paragraph.)
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