Nvidia and Microsoft are expected to see further growth in the coming years, according to hedge fund Munro. The fund believes that Nvidia, a leading provider of accelerated computing technology, has significant potential to increase its earnings per share (EPS) as more data centers adopt its technology. Munro’s modelling indicates that Nvidia could generate close to $50 in EPS, suggesting that the current trading multiple of less than 15 times future earnings potential presents an attractive investment opportunity.
For Facebook parent company Meta, the acceleration of artificial intelligence (AI) is driving higher engagement and return on advertising spend for its customers. Despite the stock’s strong performance in 2023, Meta’s revenues continue to accelerate, and margins are expanding. Munro believes that the stock is currently undervalued, with a price-to-earnings (P/E) ratio of 22 compared to the broader S&P 500’s P/E ratio of 20.5.
In the case of Microsoft, the company is poised for significant earnings growth by capitalizing on AI in two key ways. First, Microsoft provides cloud computing infrastructure through its Azure product, and second, it offers software solutions like Copilot, which can command a premium from customers. Munro sees Microsoft at the beginning of a long growth trajectory, making it an appealing investment opportunity.
Turning to the quick-service restaurant space, Munro’s fund is long on Chipotle. The fund differentiates Chipotle from its rivals based on the company’s focus on rolling out thousands of new stores worldwide. Unlike many of its competitors, Chipotle owns its restaurants rather than franchising them, allowing for a higher return on investment as the company expands.
The recently concluded US reporting season has been positive for many of Munro’s portfolio companies. Strong revenue growth, supported by structural tailwinds such as AI, e-commerce, and decarbonization, has contributed to their success. Several companies in Munro’s portfolios are also experiencing rapid margin expansion, with Amazon being a notable example.
Despite its past revenue decline, Meta has managed to re-accelerate its growth and increase user interaction with its platform. This revenue growth is partially attributed to Meta’s increased spending on Nvidia chips to enhance its AI product suite. Munro believes that this revenue re-acceleration story is still underappreciated by the market and presents an attractive investment opportunity.
In personal recommendations, Munro highlights Scopri in Carlton as a favorite bar or restaurant in Melbourne, known for its delicious home-style Italian food. Additionally, the Acquired podcast is recommended as an excellent resource for listeners interested in business topics. Overall, Munro’s insights and analysis provide valuable insights for investors seeking opportunities in the evolving market landscape.
