Moving ahead

Investment Thoughts

04 Jun 2020

What Happened? Nvidia Corp., which has significant operations in China, was given the green light by the country’s antitrust authority for its $6.9 billion acquisition of Israeli chip designer Mellanox Technologies Ltd. The company is a maker and supplier of Ethernet switches and adapters that connect computers. Nvidia, known for its powerful gaming graphics chips, wants to boost its data center and artificial intelligence business through the Mellanox takeover, its biggest deal, to better compete with rival Intel. Mellanox shares rose nearly 2% in afternoon trading, while Nvidia jumped about 4% upon the news last Thursday.
 
UBS View: We believe the market is underestimating NVIDIA's long-term growth opportunities. Excess inventory issues have been largely resolved and a gradual recovery in gaming and data center capex should result in accelerating growth. Beyond the near-term boost from restocking, NVIDIA seems to extend its leadership beyond the AI training market into the AI inference market, leaving its competitors behind. Longer-term opportunities in edge segments like cars, robotics and smart cities will likely provide more diversified opportunities.
 
Such views can be implemented in many ways, and examples are illustrated below. The examples have not been checked for suitability, to find out more about what may be suitable for you please speak to your client advisor. 

Example of how investors can express this view:
Autocallable Reverse Convertible Notes (RCNs) on selected stocks

  • Enhance portfolio yield with 10% p.a. coupon.
  • The potential to buy the stock at a 35.29% discount to the current price.
  • Stock selection is based on UBS Research buy or neutral rating and large market capitalization.

Key Terms*

Tenor

6 months

Currency

USD

Underlying(s)

Costco Wholesale Corporation (COST US) and Walmart Inc. (WMT US)

Strike Level

75.45%

Coupon (p.a.)

10%

Autocall Level

98%

Coupon / Autocall Period Frequency

Monthly

Issuer (Rating)

UBS AG acting through its London branch (S&P:A+/Moody's:Aa3)

Worst-of Underlying

The Underlying with the lowest value of (Spot price / Initial price) at the time of observation

Payoff

Early redemption: The note will be early redeemed at 100% of the denomination with coupon for that period if the worst-of underlying closes at or above the Autocall level at each periodic observation date

At maturity:

  • Case 1: If the worst-of underlying closes at or above its Strike level, the investor will receive the coupon for that period, plus 100% of the denomination
  • Case 2: Otherwise, the investor will receive the coupon for that period, plus physical delivery of the worst-of underlying at Strike level
     

The same RCN structure can be tailored with a shorter tenor of 3 months on Nike., Inc. (NKE US) and The Coca-Cola Company (KO US), with indicative strike at 71.54% holding all other parameters the same.
 
For alternative stock underlyings, kindly refer to the UBS CIO Paper.
 
Contact

  • In case of interest please contact your Client Advisor

Key Risks: 

  • Return is limited to the coupon amounts.
  • You will not receive dividends or other income that may be paid on the Underlying(s)
  • A loss can result if the Underlying(s) closes below the Strike Level at maturity
  • Before maturity, the realisable value of the product may fall below the issue price even if the Underlying has appreciated against its initial price.
  • In a worst case scenario, the product becomes worthless and you will lose the capital invested
  • In the event that the product is redeemed early, you may not be able to reinvest the redemption proceeds in another instrument with a comparable return profile.
  • The product is unlisted and there may not be an active or liquid secondary market.
  • You are fully exposed to both the credit risk and the credit default risk of the Issuer. Should the credit rating of the Issuer deteriorate over the life of the investment, the product's value may be affected. Should the Issuer default, you may lose all capital invested and any return that may otherwise be payable/earned