Infineon, Nvidia, BMW, Defense Metals - Exploding commodity prices ahead!

Infineon - Chip production in Europe on the decline

The COVID pandemic has massively accelerated a trend: Digitalization. Almost every business model in the world today has some element of digitized business processes. It requires a lot of IT, cloud connectivity and some computing power. Digitization in production is happening gradually through the introduction of Industry 4.0 - this describes production using all the possibilities of Big Data. In supplier logistics and delivery to the customer, the levels of digitization are already close to 100% today.

Europe is dependent on imports from Asia for its supply, especially of chips and components, and the adverse effects of globalization can be seen here in detail. The pandemic, in particular, has shown that our industry must become more autonomous again. An almost "lost industry" is our chip production because it is simply too expensive in Europe. But without an increase in competence in this topic, Germany's position is not only weakened towards car manufacturers and industry, but also environmental and climate protection.

The inequalities in global competitive conditions are increasing. While China, Japan, Korea and the USA promote their digital industries, the EU is miles behind. In the German auto industry, short-time work has been going on for months due to a lack of chip deliveries. A strong industry only works if the location policy is solid and supported. Here, too, there is great uncertainty about the outcome of the elections in September. A purely green coat of paint will do considerable economic damage to Germany.

Infineon combines a great deal of technological expertise; it is one of the world's market leaders for chip-based power control and sensor technology. At the moment, however, concerns about future growth are spreading, as Infineon's share price has not risen since December. Perhaps a market cap of EUR 42 billion and a KUV of 5 for just under 7% growth per year is also already well priced in this scarcity environment.

Nvidia - The AI miracle from Santa Clara helps BMW

Nvidia Corporation is one of the largest graphics processors and chipsets developers for personal computers, servers, and game consoles. Its headquarters are in Santa Clara, California. As a pure technology Company, Nvidia has no manufacturing facilities of its own and thus operates according to the fabless principle. In the Forbes Global 2000 of the world's largest companies, Nvidia is ranked 489th in 2020.

Since the beginning of May, Nvidia's stock has risen a full 50% and an astounding 91% over a year. That is one of the most significant increases by a Nasdaq 100 technology company in recent times. What is the reason for this extraordinary performance? Nvidia is a specialist in producing AI software in addition to its core graphics card business. Artificial intelligence is crucial in self-driving electric cars but also already in their production. BMW's board of production believes it can reduce production costs per vehicle by 25% with the help of AI. Now that is a significant number!

The BMW Group and Nvidia are already collaborating on robotics. So far, BMW builds just over 2 million cars but is already expecting a capacity of 3 million vehicles per year before 2030. Above all, the "New Class" platform, which will start in 2025, is intended to decisively reduce the complexity of building BMWs with different drive systems. The highlight here is the use of Nvidia's AI platform Omniverse, which allows internal planning processes to be made 30% more efficient. With its technologies, Nvidia supports the virtual mapping of entire production networks. Industrial processes can be perfectly designed, waiting times are reduced, and machinery can be better utilized, which increases output.

Nvidia's share price recently soared to USD 776, and in terms of market capitalization, it now weighs in at just under USD 400 billion. With earnings per share of just under USD 7, the P/E ratio is thus over 100. It should be interesting to see where the stock corrects when the NASDAQ also goes into reverse gear. Due to expected profit increases, the P/E ratio should at least fall below 50 in 2023, which almost sounds cheap again.

Defense Metals - Rare earths in a political quandary

They are not only needed in the chip sector. Rare earths are only sporadically available on Earth, with 85% of the world's resources provided by China. The dependence of Western industries could not be worse, as there is currently no significant mine build-up. Demand in the electromobility and IT industries are already causing supply shortages in critical metals such as copper, nickel and lithium. The so-called rare earths are a particular group of extremely rare metals. A basic distinction is made between light and heavy rare earths. On average, the four light rare earths cerium, lanthanum, neodymium and praseodymium account for more than 95% of the rare earth deposits.

Even under the Biden administration, a constant bone of contention is US arms exports to Taiwan, a major thorn in the side of the Chinese government. But there are also many accusations the other way around. US President Joe Biden is stepping up the crackdown on Chinese companies with alleged ties to the Chinese military. He just signed an executive order banning Americans from trading in securities of an initial 59 Chinese firms starting Aug. 2. What shadow boxing on both sides!

Canadian explorer Defense Metals (DEFN) has come under investor scrutiny with its property in Wicheeda, British Columbia. The results of an X-ray study show that REE grades can be best extracted using low-cost front-end processing. The neodymium-praseodymium present is an important raw material for the manufacture of magnetic components, e.g. in the production of nuclear magnetic resonance tomographs, micromotors, wind turbines, and electric and hybrid vehicles. Mineral resources of 4.9 million tons have already been identified on around 1,700 hectares. Exploration is continuing, and a pilot plant is already being planned.

After a solid start to the year, the DEFN share has recently consolidated to CAD 0.23. The market capitalization is now manageable at around CAD 25 million, and CAD 5 million was newly raised a few weeks ago. In our opinion, interest will soon flare up again because of the political importance.