The Club's bank holdings help bolster First Republic, while our semis are set to climb on AI

Published Fri, Mar 17 20233:12 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

U.S. banks — including Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) — are banding together to shore up confidence in the banking sector, while two of our semiconductor firms are proving to be winners in the nascent AI arms race. Big banks step in WFC YTD mountain Wells Fargo's stock price year to date. The news: Wells Fargo and Morgan Stanley are part of a group of 11 banks that agreed Thursday to jointly deposit $30 billion in First Republic Bank (FRC). The extraordinary step is intended to bolster the troubled San Francisco lender and the broader U.S. banking system roughly a week after the failures of Silicon Valley Bank (SVB) and Signature Bank. Wells Fargo plans to deposit $5 billion at First Republic, along with Citigroup (C), JPMorgan Chase (JPM) and Bank of America (BAC). Morgan Stanley and Goldman Sachs (GS) contributed $2.5 billion each. The uninsured deposits, which will yield market rates, are required to stay at First Republic for at least 120 days. But investors appeared unpersuaded, with shares in First Republic tumbling 17% Friday, to just over $28 apiece. The KBW Bank Index fell nearly 5%. Wells Fargo slid over 3%, to roughly $38 per share, while Morgan Stanley declined 2.4%, to just under $85 per share. MS YTD mountain Morgan Stanley's stock performance year to date. The Club take: In theory, it's nice to see the banks rally to signal confidence in First Republic. However, investor concerns haven't been fully assuaged yet, judging by the stock moves. The $30 billion deposit at First Republic seemingly is being interpreted as a short-term fix that doesn't answer the question of whether the U.S. government will insure all deposits. Last weekend, U.S. authorities did that for depositors at both SVB and Signature Bank. We continue to believe investors should be patient on Wells Fargo shares. We're not concerned about the firm's underlying health, but elevated uncertainty around the broader financial sector is weighing on the stock and we don't want to step in too early. On the other hand, Morgan Stanley's focus on asset management has rendered us a bit more assured about using weakness as a buying opportunity. Chips get love NVDA YTD mountain Nvidia's stock performance year to date. The news: Morgan Stanley upgraded Nvidia (NVDA) to the equivalent of a buy, from equal weight, and boosted its price target to $304 per share from $255, representing about 19% upside from where the stock closed Thursday. The upgrade comes after Nvidia shares have soared more than 75% this year on optimism around its generative artificial intelligence (AI) capabilities. Nvidia's graphics processing units (GPUs) were used to train and run OpenAI's ChatGPT and can be applied to other large language models. "We have been too trading oriented in our view, and while we have correctly anticipated several events ... we have missed the bigger picture elements that NVIDIA is now the arms dealer for one of the technology races that matters most," Morgan Stanley analysts wrote in a note Thursday. Meanwhile, TD Cowen lifted its price target on Advanced Micro Devices (AMD) to $120 per share, up from $100. The new outlook represents about 24% upside from the stock's Thursday close, at $96.60 per share. "In short, we see significant share gain opportunities well into 2024/25 driven by core markets and increasingly AI," analysts at the bank wrote in a note Thursday. AMD YTD mountain Advanced Micro Device's stock performance year to date. The Club take: Morgan Stanley's revised view is notable, with the analysts acknowledging they had initially failed to appreciate the AI opportunity for Nvidia. We remain believers in that multiyear story around AI and see Nvidia as the most promising way to reap the financial rewards. Nvidia's chips are integral to training the large language models that power ChatGPT and the other AI tools being rolled out by fellow Club holding Microsoft (MSFT). In the near term, Morgan Stanley's upgrade implies there could be some "late money coming in" to Nvidia shares, Jim Cramer said Friday, suggesting this year's rally may have more steam with the company's annual AI conference next week. As for AMD, we share TD Cowen's belief that the company's AI strategy has not been fully appreciated by investors. Whereas Nvidia's chips fuel the model training, AMD could play a big role in the computing needed to use those models on a daily basis. The PC market has been an overhang on AMD's stock in recent months. But the inventory correction seems to have bottomed, allowing the stock to climb nearly 50% year-to-date. (Jim Cramer's Charitable Trust is long NVDA, MS, WFC and AMD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Nvidia founder, President and CEO Jen-Hsun Huang delivers a keynote address at CES 2017 at The Venetian on Jan. 4, 2017 in Las Vegas.

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