From budgets to breakthroughs: South Africa’s fiscal outlook vs. Nvidia’s phenomenal 4th quarter

On Wednesday last week our minister of finance stood up and told us all about our national budget. It is a speech about how our country is performing financially, and off course as taxpayers we are interested in any tax changes for the next year. Well, not much was said. As a country we are still spending more than we are earning. If you are employed by the state you get the lion’s share of our national income, and we pay a lot of interest on the money we have borrowed. For you as a taxpayer, except for some higher taxes on alcohol, cigarettes and the normal stuff, the tax rates have not been raised but, the tax brackets have also not been adjusted for inflation. So, if you get a salary increase, you might fall into a higher tax bracket and pay more tax in any way.

Another stealth tax is the fact that tax rebates, medical aid tax credits, tax free donations, capital gains rebate, primary home exemptions and interest earned exemptions, plus all the other tax allowances, have stayed the same. Some of these have not been adjusted for years, so with inflation they are losing impact.

But, we like to be positive and for that we have to look somewhere else. On the same day as our budget speech, there was a company in the USA releasing its 4th quarter results for 2023. It was the most anticipated release in the history of the US markets because the company is the leading computer chip manufacture for AI and anything computer wise. That company is Nvidia.

The results were spectacular. We are talking hundreds of percent growth in only 3 months compared to the previous year and more to come. The share price is also up 1100% over the last 4 years so if you bought say R100 000 of this share in 2020, your investment in now worth R1 100 000. Some people will argue that the share price is too high relative to its earning, or that like Bitcoin it is just a house of cards, but that is not true. The share is on a PE basis now actually cheaper than it was a year ago because the earnings grew faster than the share price.

And that brings me to the difference between the South African budget speech and the Nvidia share price. Growth! There was no clear path set out in the budget about creating growth. Without growth there can be no increase in value. Nvidia has only one objective and that is growth. It had a vision in 1993 when it was founded and today it is the godfather of the most paradigm shifting technology since the internet. Make no mistake, if the current incompetent leadership in our government is replaced by competent leadership, South Africa will generate sufficient growth to drag our economy out of the quagmire.

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