DIVERSIFYING WITH COLLECTIBLES

The collectibles market is booming. During the pandemic, folks with old collections dug them out, new collectors came to market, and trading activity and prices across categories from sports memorabilia to fine wines soared.

“I can’t even count the number of people who contacted us during the pandemic who hadn’t touched their collections in more than 10 years,” says Scott English, executive director of the American Philatelic Society in Bellefonte, Pa., who welcomed attention on stamps when four 1918 Inverted Jenny stamps—so-called because they were printed with an upside down airplane—fetched a record US$4.9 million at Sotheby’s last year.

Sales of global collectibles are expected to grow to US$692 billion from $412 billion over the next 10 years, according to Market Decipher, a Canadian market research firm.

For investors, a long view is advisable, says David Savir, CEO of Element Pointe Advisors, a wealth management firm in Miami. “Many collectibles are at values that may not be sustainable for the next two to three years,” he says. “Anyone buying should be holding them for over a decade and not expect to profit in the short term.”

The highest level of trading activity is in sports collectibles, boosted by the entry of sports-related nonfungible tokens, or NFTs, which exploded to $1 billion in sales last year—bigger than the entire 2020 NFT market—and are expected to reach $2 billion this year, according to the London-based consultancy Deloitte.

The overall NFT market surged to $24.9 billion last year, including digital creations from high-end fine art to collectibles. Sales of popular collectible series haven’t waned: In March, sales of Bored Ape Yacht Club and CryptoPunks hit $257 million and $81 million, respectively, according to CryptoSlam, an aggregator of NFT data.

Tangible sports memorabilia aren’t taking a back seat to NFTs: Sales in the traditional $4 billion arena have been breaking records. Last year, a Dallas Mavericks star Luka Doncic rookie NBA trading card sold for $4.6 million—the most fetched for a basketball card—and a 1952 Mickey Mantle card hit a record for baseball cards, at $5.2 million.

For classic cars, the first quarter of each year is when three of the biggest car auctions take place, says Juan Calle, co-founder and CEO of Classic.com, a site that tracks car market data. This year’s quarter closed with a total sales volume of $1.3 billion, double the same period last year, Calle says.

While other categories have less practical value, they can be attractive diversifiers for investment portfolios.

Consider fine wine’s low correlation to the S&P 500: just 0.3, which is lower than gold, real estate, or any traditional portfolio-balancing asset class, says Anthony Zhang, co-founder and CEO of Vinovest, which runs a portfolio of 500,000 collectible wine bottles stored in custom-built warehouses around the world. “We’ve seen a big uptick in interest from people who you wouldn’t traditionally think of as wine enthusiasts,” he says.

The wine market tends to shrug off factors that send stocks reeling, but has other sensitivities, such as tariffs and even gift-giving policies in authoritarian nations. When China banned gifts to government employees in 2011, popular Bordeaux wine values plummeted, says Robbie Stevens, Americas Territory Manager for London-based Liv-ex, a global marketplace for fine wine.

The broad Liv-ex 1000 index was up 19% in 2021, driven primarily by the popularity of Champagne and Burgundy. In the 12 months through March, Liv-ex’s index for Champagne was up 47.8%, and for Burgundy, 36.8%.

But no category is immune to broad economic trends, says financial advisor Savir. “Collectibles are more vulnerable to price declines in a recession than other assets, given the nonessential nature of many of them.”

This article appeared in the June 2022 issue of Penta magazine.

Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.

When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.

The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.

But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.

Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.

After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.

“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”

The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.

Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.

In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.

Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.

“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”

Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.

“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.

The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.

The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.

In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.

Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.

DIVERSIFYING WITH COLLECTIBLES

Sales of global collectibles are expected to grow to US$692 billion over the next 10 years.

Nvidia’s earnings will test Wall Street’s confidence in the AI boom.