Shares associated with artificial intelligence are experiencing real hype on stock markets at the moment. AMD, for instance, has appreciated some 70% since the turn of the year, Palantir 120%, while Nvidia has actually seen its market value almost triple. The recent strong business trends – results for the first quarter and estimates for the second quarter came in well ahead of expectations – have delivered an extra boost for the front-runners. Nvidia’s figures, however, are also evidence that AI is real and that there is money to be made from it. On the other hand, the share price rally also means that Nvidia has since been trading at around 60 times the expected earnings per share for this year. According to data from Refinitiv, that puts it nearly at the peak of 68 times expected earnings reached in 2021. With price-earnings ratios (PER) of 42 for AMD and as much as 77 for Palantir, the two comrades-in-arms are certainly not bargains at first glance. Nevertheless, the potential for expansion is huge: for all three companies, the consensus of analysts at present is for a three-figure percentage increase in earnings per share this year. These growth prospects at least put the high PER figures in some sort of context.
Chart images resembling a flagpole and valuations at levels where the air appears to be getting thin are not exactly invitations to a direct investment. That does not mean, however, that the rally is necessarily over. AI is driving technological breakthroughs and changing the way we live, work and even go shopping. Ultimately, it also gives the companies high sales and profits, which is why the technology is also being traded on the stock market as the “next big thing”. An exposure to the sector can accordingly certainly pay off for investors. Leonteq has added a particularly sophisticated product to its range that allows several birds to be killed with one stone. The Bonus Lock-In certificate combines partial protection with an especially attractive yield profile, which is in turn rounded off with a hugely on-trend, promising trio of underlying stocks comprising AMD, Nvidia and Palantir.
The Bonus Lock-In certificate offers investors the opportunity to profit from rising prices of the AI trio while also cashing in on this movement with the clever lock-in function even during the term. This applies even for the case that the underlyings experience a correction at the end. Taking one thing at a time, though, the prices of the three underlying stocks are reviewed every three months. Should the weakest underlying be above a lock-in level, this level is locked in, i.e. secured. Repayment at the end of the product term is then governed by the highest lock-in level achieved. The first threshold is located at the initial fixing, i.e. 100%. Every further level is 2% higher, until the final step of 130% is reached. The opportunity of a profit is not limited to this level, however: should the weakest underlying be trading at more than 130% at the end of the term, the holder of the certificate will profit 100% from this movement – with no limit. If the weakest member of the trio finishes the term at 140%, for instance, investors can enjoy a return of 40%.
The worst case is that a lock-in level is not reached on any review date. This scenario can be compared with the repayment of a barrier reverse convertible with a European barrier. It is immaterial how the underlyings have performed during the term: only the final fixing is decisive. If the worst performer is above the barrier, which is set at 65% of the initial fixing, the investor receives 100% of the nominal back again. Should the weakest stock trade at or below the barrier, however, the repayment is governed by the price of this underlying. In this case holders of the certificate will get the underlying in their portfolio. That means a loss will not be realised immediately, because there is a chance that the share will make up ground again.
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