Worrisome ? Saudi Arabia is appearing in the global market
Atualizado
The development and use of artificial intelligence has been a source of much discussion and concern around the world. In this scenario, a country that has long been overlooked in the technological area begins to emerge; Saudi Arabia. It is a controversial country, which participates in several conflicts in the region, directly or indirectly, and which has a bad record of human rights. However, it seeks to modernize and become a technological hub in the region. To do this, it adopts a curious strategy: investing in soccer. The Saudi national championship features names like Cristiano Ronaldo and Neymar Junior, as well as some European coaches, who were hired for astronomical values. But what is the purpose of this? It is not just a passion for the sport, but rather a way of diversifying its image and attracting investments.
Macroeconomics
As the largest Arab economy and one of the largest in the world, Saudi Arabia expects to reach a GDP of over 1 trillion dollars in 2023. However, its economic performance still faces many challenges, such as inflation, unemployment, public debt and current account deficit. In addition, the kingdom seeks to reduce its dependence on oil, whose prices are unstable and subject to external shocks. An example of this was the Covid-19 pandemic, which caused a 4.1% drop in GDP in 2020. Faced with this scenario, the Saudi government implemented measures of fiscal stimulus, public accounts adjustment and economic and social diversification, within the framework of the Vision 2030 plan. These measures favored the recovery of the economy in 2021, with an estimated growth of 8%. For the next few years, the prospects are positive, but moderate: a growth of 3.1% is expected in 2023 and 3.5% in 2024.
Table of data for 2020 and current 2023:
Source: Nasdaq.com; Al-Monitor
The Saudi oil sector
It is controlled by the state-owned Saudi Aramco, the largest company in the world in market value and oil extraction. It produces 9.2 million bpd (barrels of oil per day), 9% of world production and half of the bloc’s capacity. The company also influences the global fossil fuel market by its extraction policy and its agreements with OPEC+. In 2020, it led an agreement of the organization to reduce extraction by 9.7 million bpd, 10% of global supply, until April 2021. In 2023, it also announced voluntary cuts in its extraction, with Riyadh saying it would reduce oil by 400 thousand bpd from May until the end of 2023. In addition, it extended the voluntary cut of one million bpd for another month, until July 2023. These measures aim to balance the fossil fuel market and avoid an oversupply.
In August 2021, the price of Brent (international reference) was around US$ 72 per barrel, an increase of about 40% compared to the beginning of the year.
And a recovery of about 80% compared to the lowest level recorded in April 2020 (US$ 40 per barrel). This high was sustained by the reduction of OPEC+ supply, by the improvement of demand with vaccination and by the expectation of a global economic recovery.
The oil sector faces uncertainties and risks, such as the Delta variant of Covid-19, which can reduce the demand for oil, geopolitical tensions and the energy transition to renewable sources. Remember that the war between Russia and Ukraine has a direct impact on this sector, as oil is a strategic and essential resource for the development of many countries. Factors such as supply shortage, energy insecurity, geopolitical tension and emergency stock release affect fossil fuel prices, generating impacts on inflation, transportation, production, and consumption. How to solve this problem? It is important to seek peaceful and diplomatic solutions for the conflict in Ukraine, as well as sustainable and renewable alternatives for the global energy matrix. Oil consumption depends mainly on the level of economic activity of consumer and importer countries, which can increase or decrease their demand.
WTI and Brent Oil Technical Analysis
WTI Futures
To be more precise, WTI suffered a slight drop from 127 to 66.87, resulting in a range between 69.84. In the chart below, we can observe that this corresponds to an accumulation pattern, based on Wyckoff’s structure. Stock data of this fossil fuel still indicate scarcity, as extraction was reduced since the beginning of the pandemic. There was a significant decrease in extraction between 2021 and 2022, compared to the period from 2017 to 2019, when it was much higher. In addition, the ESG sustainable movement agendas have long sought to reduce oil extraction, aiming to raise awareness about the use of fossil fuels worldwide. A more detailed analysis of the daily oil chart reveals an accumulation range. In the month of June, there was a significant increase in buying volume, indicating investor interest in buying. I believe this accumulation range will last for some time. After that, investors should wait for signs of interest rate cuts, which may occur in 2024. Jerome Powell does not signal a cut, but rather increases in interest rates. As we know, lowering inflation in the US economy is a challenge for the Federal Reserve, which directly affects the price of crude oil.
The same pattern seems to repeat itself when we examine the Brent oil CFD. Again, we observe an accumulation structure during this period. We can also identify a bearish channel. Even with the buying flow since June, the market may return to the range between 86 and 70 until there are signs of improvement in economic data.
What I mean by that is that Saudi Arabia, along with the United Arab Emirates, took advantage of the appreciation of oil to generate more wealth and profitability. This positively impacted the Middle Eastern countries. High oil prices benefited the countries, which increased their production, revenue and geopolitical influence, and they bought clubs, made sports partnerships, opening doors for diversification.
Country’s Investments in Technology
Saudi Arabia has invested billions of dollars in technology and innovation, as part of its plan for economic diversification and social modernization. The country has sought to become a hub for research and development in areas such as artificial intelligence, cloud computing, biotechnology, robotics, and cybersecurity. One of the examples of these investments is the purchase of 3,000 H100 chips from Nvidia, each valued at US$ 40,000, by the King Abdullah University of Science and Technology (Kaust), a national public research institution. These chips are essential for the development of artificial intelligence software, especially those based on the GPT-3 model. Kaust plans to use Nvidia’s chips to create its own ChatGPT, an intelligent conversation system that can interact with users in Arabic and English, answering questions, providing information and offering services. In addition to Kaust, other national institutions and companies have also bought chips from Nvidia to develop artificial intelligence projects. For example, the Saudi Telecom Company (STC), the largest telecommunications operator in the country, acquired 1,000 H100 chips to create a cloud computing platform that offers AI services to corporate and governmental customers.
As we explore the implications of Saudi Arabia’s controversial ambitions, it is essential to consider how these actions are shaping global relations and, more specifically, the impact they have on leading companies in the technological scenario, such as Nvidia.
What does NVIDIA have to do with it?
Nvidia has stood out remarkably in relation to other companies in the development of chips for artificial intelligence, arousing the interest of Middle Eastern countries. But, this rise, caused some concerns to the United States, which began to impose trade restrictions in the region. To better understand why Nvidia has stood out in this scenario, I decided to create a qualitative and quantitative analysis. Let’s explore the reasons behind Nvidia’s continued success in the field of technology.
My goal is to show how Nvidia is benefiting from innovation in its sector and how this can impact its market performance.
Qualitative analysis NVIDIA
Nvidia is a company known for its products aimed at gaming, but that also stands out in the sector and in the race of artificial intelligences. The company positions itself as a leader and reference in this field, being one of the most valuable in the world. In 2020, its revenue was US$ 16.68 billion and, in August 2021, its market value was US$ 538 billion. With more than 18 thousand employees in more than 30 countries, Nvidia has strategic partnerships with technology giants such as Google, Microsoft, Amazon, Facebook, and Tesla.
Relevant Details of the Sector of Activity:
The semiconductor sector, in which Nvidia operates, is very competitive and innovative. Semiconductors are essential for the manufacture of electronic components and require efficient chips to meet growing demands. Nvidia differentiates itself by its experience in GPUs optimized for parallel processing and AI. In addition to having a solid presence in games, the company also offers solutions for cloud, data centers, IoT and other areas. For this, it invests continuously in research and development.
SWOT analysis:
_____
Strengths:
* Market leadership in the CCaaS segment.
* An open and flexible platform that integrates various cloud communication and collaboration solutions.
* High quality and security of the services offered by the company.
* Strong revenue and profit growth in recent years.
Weaknesses:
* Dependence on the North American market, which accounts for approximately 70% of the company's revenue.
* Vulnerability to cyberattacks and privacy breaches.
* Difficulty in retaining and attracting qualified talent in the technology sector.
Opportunities:
* Increased demand for cloud communication and collaboration solutions due to the COVID-19 pandemic and trends in hybrid work and online education.
* Expansion into new geographical markets and customer segments.
Development of new products and services that add value to customers and generate recurring revenue.
* Strategic partnerships with other technology companies to enhance integration and interoperability of the company's solutions.
Threats:
* Intensified competition in the CCaaS segment, with the entry or strengthening of major market players such as Microsoft, Google, Cisco, and Facebook.
* Regulatory or legal changes that could impact the SaaS sector or the CCaaS segment.
* Reduced demand for cloud communication and collaboration solutions after the end of the pandemic or the return to in-person activities.
Source: Seeking Alpha
_____
Fundamental Analysis
Going straight to the point about the financial health and performance of the company. For this, let’s use the financial data from the second quarter of fiscal year 2024 (ended July 31, 2023). The financial indicators that we will consider are: EBITDA, CFO, ROE, ROIC, Gross Margin and Operating Margin.
Source: Yahoo Finance
According to the data, it presents good indicators of profitability, cash generation and margins, despite the drop in revenue and profit compared to the previous year. The company stands out in the data center segment, which grew 61% compared to last year. It faces some challenges, such as Russia’s sanctions and China’s lockdowns, which may affect its performance in the future. But the company continues to invest in innovation and expansion, such as the acquisition of ARM and the launch of the Omniverse platform. NVIDIA is a leader in the graphics chip market, with potential to grow even more in the coming years.
Source: Yahoo Finance
The company has a liquidity of 5.07, which indicates good liquidity. This means that the company has more than enough to cover its short-term obligations.
The company has a debt of 0.19, which indicates low debt. This means that the company has a healthy capital structure and is not heavily leveraged.
We can conclude that Nvidia has a solid financial position and that it can take advantage of growth opportunities in the technology market. It has also shown consistent results and exceeded expectations. That is why it is considered one of the best in the technology sector.
NVIDIA Technical analysis:
Translate: But if we look deeper, the video increases since October 2022. If we look closely at the year 2022, it was a year in which the S&P 500 had a very large devaluation compared to the year 2021:
It's evident that major stocks listed on Nasdaq and NYSE have also been impacted by this performance, with balances well below expectations and generating significant pessimism. From October 2022, we began to observe a gradual recovery in major stocks listed on Nasdaq and NYSE, although this began in June when there was an increase in purchases on June 21. Despite the sharp decline, there was a recovery from this drop, forming a range where investors took advantage of the pessimism to buy stocks. The movement observed at the bottom on October 3 corresponds to a “spring,” indicating the end of the downtrend.
2023 has been a positive year for Nvidia, and the recent surge could further boost share prices if it breaches the 483 region.
After examining the impact of Nvidia on the global technology scenario, we see that technological innovations are not always used positively. We do not know how far Saudi Arabia plans to go, but its ambition and power raise doubts. The country is a controversial figure in the global scenario and with all the investment in technology and innovation, they can generate concerns for the international community. I hope this article was useful and informative for you. Thank you for your reading.
Source: Reuters, Financial Times, Investing.com. Tradingview.com, Yahoo Finance
Macroeconomics
As the largest Arab economy and one of the largest in the world, Saudi Arabia expects to reach a GDP of over 1 trillion dollars in 2023. However, its economic performance still faces many challenges, such as inflation, unemployment, public debt and current account deficit. In addition, the kingdom seeks to reduce its dependence on oil, whose prices are unstable and subject to external shocks. An example of this was the Covid-19 pandemic, which caused a 4.1% drop in GDP in 2020. Faced with this scenario, the Saudi government implemented measures of fiscal stimulus, public accounts adjustment and economic and social diversification, within the framework of the Vision 2030 plan. These measures favored the recovery of the economy in 2021, with an estimated growth of 8%. For the next few years, the prospects are positive, but moderate: a growth of 3.1% is expected in 2023 and 3.5% in 2024.
Table of data for 2020 and current 2023:
Source: Nasdaq.com; Al-Monitor
The Saudi oil sector
It is controlled by the state-owned Saudi Aramco, the largest company in the world in market value and oil extraction. It produces 9.2 million bpd (barrels of oil per day), 9% of world production and half of the bloc’s capacity. The company also influences the global fossil fuel market by its extraction policy and its agreements with OPEC+. In 2020, it led an agreement of the organization to reduce extraction by 9.7 million bpd, 10% of global supply, until April 2021. In 2023, it also announced voluntary cuts in its extraction, with Riyadh saying it would reduce oil by 400 thousand bpd from May until the end of 2023. In addition, it extended the voluntary cut of one million bpd for another month, until July 2023. These measures aim to balance the fossil fuel market and avoid an oversupply.
In August 2021, the price of Brent (international reference) was around US$ 72 per barrel, an increase of about 40% compared to the beginning of the year.
And a recovery of about 80% compared to the lowest level recorded in April 2020 (US$ 40 per barrel). This high was sustained by the reduction of OPEC+ supply, by the improvement of demand with vaccination and by the expectation of a global economic recovery.
The oil sector faces uncertainties and risks, such as the Delta variant of Covid-19, which can reduce the demand for oil, geopolitical tensions and the energy transition to renewable sources. Remember that the war between Russia and Ukraine has a direct impact on this sector, as oil is a strategic and essential resource for the development of many countries. Factors such as supply shortage, energy insecurity, geopolitical tension and emergency stock release affect fossil fuel prices, generating impacts on inflation, transportation, production, and consumption. How to solve this problem? It is important to seek peaceful and diplomatic solutions for the conflict in Ukraine, as well as sustainable and renewable alternatives for the global energy matrix. Oil consumption depends mainly on the level of economic activity of consumer and importer countries, which can increase or decrease their demand.
WTI and Brent Oil Technical Analysis
WTI Futures
To be more precise, WTI suffered a slight drop from 127 to 66.87, resulting in a range between 69.84. In the chart below, we can observe that this corresponds to an accumulation pattern, based on Wyckoff’s structure. Stock data of this fossil fuel still indicate scarcity, as extraction was reduced since the beginning of the pandemic. There was a significant decrease in extraction between 2021 and 2022, compared to the period from 2017 to 2019, when it was much higher. In addition, the ESG sustainable movement agendas have long sought to reduce oil extraction, aiming to raise awareness about the use of fossil fuels worldwide. A more detailed analysis of the daily oil chart reveals an accumulation range. In the month of June, there was a significant increase in buying volume, indicating investor interest in buying. I believe this accumulation range will last for some time. After that, investors should wait for signs of interest rate cuts, which may occur in 2024. Jerome Powell does not signal a cut, but rather increases in interest rates. As we know, lowering inflation in the US economy is a challenge for the Federal Reserve, which directly affects the price of crude oil.
The same pattern seems to repeat itself when we examine the Brent oil CFD. Again, we observe an accumulation structure during this period. We can also identify a bearish channel. Even with the buying flow since June, the market may return to the range between 86 and 70 until there are signs of improvement in economic data.
What I mean by that is that Saudi Arabia, along with the United Arab Emirates, took advantage of the appreciation of oil to generate more wealth and profitability. This positively impacted the Middle Eastern countries. High oil prices benefited the countries, which increased their production, revenue and geopolitical influence, and they bought clubs, made sports partnerships, opening doors for diversification.
Country’s Investments in Technology
Saudi Arabia has invested billions of dollars in technology and innovation, as part of its plan for economic diversification and social modernization. The country has sought to become a hub for research and development in areas such as artificial intelligence, cloud computing, biotechnology, robotics, and cybersecurity. One of the examples of these investments is the purchase of 3,000 H100 chips from Nvidia, each valued at US$ 40,000, by the King Abdullah University of Science and Technology (Kaust), a national public research institution. These chips are essential for the development of artificial intelligence software, especially those based on the GPT-3 model. Kaust plans to use Nvidia’s chips to create its own ChatGPT, an intelligent conversation system that can interact with users in Arabic and English, answering questions, providing information and offering services. In addition to Kaust, other national institutions and companies have also bought chips from Nvidia to develop artificial intelligence projects. For example, the Saudi Telecom Company (STC), the largest telecommunications operator in the country, acquired 1,000 H100 chips to create a cloud computing platform that offers AI services to corporate and governmental customers.
As we explore the implications of Saudi Arabia’s controversial ambitions, it is essential to consider how these actions are shaping global relations and, more specifically, the impact they have on leading companies in the technological scenario, such as Nvidia.
What does NVIDIA have to do with it?
Nvidia has stood out remarkably in relation to other companies in the development of chips for artificial intelligence, arousing the interest of Middle Eastern countries. But, this rise, caused some concerns to the United States, which began to impose trade restrictions in the region. To better understand why Nvidia has stood out in this scenario, I decided to create a qualitative and quantitative analysis. Let’s explore the reasons behind Nvidia’s continued success in the field of technology.
My goal is to show how Nvidia is benefiting from innovation in its sector and how this can impact its market performance.
Qualitative analysis NVIDIA
Nvidia is a company known for its products aimed at gaming, but that also stands out in the sector and in the race of artificial intelligences. The company positions itself as a leader and reference in this field, being one of the most valuable in the world. In 2020, its revenue was US$ 16.68 billion and, in August 2021, its market value was US$ 538 billion. With more than 18 thousand employees in more than 30 countries, Nvidia has strategic partnerships with technology giants such as Google, Microsoft, Amazon, Facebook, and Tesla.
Relevant Details of the Sector of Activity:
The semiconductor sector, in which Nvidia operates, is very competitive and innovative. Semiconductors are essential for the manufacture of electronic components and require efficient chips to meet growing demands. Nvidia differentiates itself by its experience in GPUs optimized for parallel processing and AI. In addition to having a solid presence in games, the company also offers solutions for cloud, data centers, IoT and other areas. For this, it invests continuously in research and development.
SWOT analysis:
_____
Strengths:
* Market leadership in the CCaaS segment.
* An open and flexible platform that integrates various cloud communication and collaboration solutions.
* High quality and security of the services offered by the company.
* Strong revenue and profit growth in recent years.
Weaknesses:
* Dependence on the North American market, which accounts for approximately 70% of the company's revenue.
* Vulnerability to cyberattacks and privacy breaches.
* Difficulty in retaining and attracting qualified talent in the technology sector.
Opportunities:
* Increased demand for cloud communication and collaboration solutions due to the COVID-19 pandemic and trends in hybrid work and online education.
* Expansion into new geographical markets and customer segments.
Development of new products and services that add value to customers and generate recurring revenue.
* Strategic partnerships with other technology companies to enhance integration and interoperability of the company's solutions.
Threats:
* Intensified competition in the CCaaS segment, with the entry or strengthening of major market players such as Microsoft, Google, Cisco, and Facebook.
* Regulatory or legal changes that could impact the SaaS sector or the CCaaS segment.
* Reduced demand for cloud communication and collaboration solutions after the end of the pandemic or the return to in-person activities.
Source: Seeking Alpha
_____
Fundamental Analysis
Going straight to the point about the financial health and performance of the company. For this, let’s use the financial data from the second quarter of fiscal year 2024 (ended July 31, 2023). The financial indicators that we will consider are: EBITDA, CFO, ROE, ROIC, Gross Margin and Operating Margin.
Source: Yahoo Finance
According to the data, it presents good indicators of profitability, cash generation and margins, despite the drop in revenue and profit compared to the previous year. The company stands out in the data center segment, which grew 61% compared to last year. It faces some challenges, such as Russia’s sanctions and China’s lockdowns, which may affect its performance in the future. But the company continues to invest in innovation and expansion, such as the acquisition of ARM and the launch of the Omniverse platform. NVIDIA is a leader in the graphics chip market, with potential to grow even more in the coming years.
Source: Yahoo Finance
The company has a liquidity of 5.07, which indicates good liquidity. This means that the company has more than enough to cover its short-term obligations.
The company has a debt of 0.19, which indicates low debt. This means that the company has a healthy capital structure and is not heavily leveraged.
We can conclude that Nvidia has a solid financial position and that it can take advantage of growth opportunities in the technology market. It has also shown consistent results and exceeded expectations. That is why it is considered one of the best in the technology sector.
NVIDIA Technical analysis:
Translate: But if we look deeper, the video increases since October 2022. If we look closely at the year 2022, it was a year in which the S&P 500 had a very large devaluation compared to the year 2021:
It's evident that major stocks listed on Nasdaq and NYSE have also been impacted by this performance, with balances well below expectations and generating significant pessimism. From October 2022, we began to observe a gradual recovery in major stocks listed on Nasdaq and NYSE, although this began in June when there was an increase in purchases on June 21. Despite the sharp decline, there was a recovery from this drop, forming a range where investors took advantage of the pessimism to buy stocks. The movement observed at the bottom on October 3 corresponds to a “spring,” indicating the end of the downtrend.
2023 has been a positive year for Nvidia, and the recent surge could further boost share prices if it breaches the 483 region.
After examining the impact of Nvidia on the global technology scenario, we see that technological innovations are not always used positively. We do not know how far Saudi Arabia plans to go, but its ambition and power raise doubts. The country is a controversial figure in the global scenario and with all the investment in technology and innovation, they can generate concerns for the international community. I hope this article was useful and informative for you. Thank you for your reading.
Source: Reuters, Financial Times, Investing.com. Tradingview.com, Yahoo Finance
Nota
The SWOT analysis was based on an article written by an alpha contributor looking for a KO asset (Coca-Cola), to add to NVIDIA's qualitative analysis:seekingalpha.com/article/3202166-the-coca-cola-company-a-short-swot-analysis
all other fonts that were used:
Macro economy:Nasdaq: Saudi Arabia's PIF to invest $40 billion annually in domestic economy until 2025 (nasdaq.com/artic...billion-annually-in- domestic-economy-until-2025-2021-01)
Al-Monitor: Saudi Arabia's Vision 2030 faces uphill battle amid pandemic, low oil prices (al-monitor.com/o...pandemic-oil-prices. html)
Arab News: Saudi Arabia’s Vision 2030 reform plan remains on track (arabnews.com/nod...756/business-economy)
IMF: World Economic Outlook Database, October 2021 (imf.org/en/...ober/weo-report?c=512,446,... 2C668%2C614%2C672%2C311%2C946%2C213%2C137%2C911%2C962%2C193%2C674%2C122%2C676%2C912%2C548%2C556%2C678%2C181%2C867%2C682%2 C513%2C684%2C316%2C273%2C913% 2C868%2C124%2C921%2C339%2C948%2C638%2C943&s=NGDP_RPCH&sy=2019&ey=2026&
Oil sector: Sources: 1 BP Statistical Review of World Energy 2021 (bp.com/content/d.../statistical-review/ bp-stats-review-2021-full-report.pdf) 2 OPEC+ agrees to extend oil output cuts until April, Saudi keeps voluntary cap (reuters.com/arti...s-opec-meeting/opec- agrees-to-extend-oil-output-cuts-until-april-saudi-keeps-voluntary-cap-idUSKBN2AV0QX) 3 Saudi Arabia will extend cut in oil production for another month (economia.uol.com .br/noticias/estadao-conteudo/2023/07/03/arabia-saudita-vai-extend-corte-na-producao-de-petroleo-por-mais-one-month.htm) Oil Price Charts (https:/ /oilprice.com/oil-price-charts)
technology investment: ft.com/content/b...7f-956f-01f248ff8dfe
tradingview.com/...-nvidia-gpus-for-ai/
meu canal: t.me/mercadosemenrolar
Artigo secreto: Minha experiência sobre a MFF. Ela é uma das piores (Exclusivo) br.tradingview.com/chart/WIN1!/FsCn2eHv/
Artigo secreto: Minha experiência sobre a MFF. Ela é uma das piores (Exclusivo) br.tradingview.com/chart/WIN1!/FsCn2eHv/
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