Right now, there is no hotter area to invest than artificial intelligence (AI). Over the last two years, AI’s most lucrative opportunities have been concentrated in a small cohort of megacap tech stocks known as the “Magnificent Seven.” And within the Magnificent Seven, semiconductor darling Nvidia has emerged at the forefront of the pack.
On the surface, investing in Nvidia makes all the sense in the world if you want exposure to AI. However, smart investors understand that sometimes the most obvious opportunities do not necessarily make the wisest investments.
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Take Jeff Yass as an example. The billionaire co-founder of Susquehanna International Group (SIG) has been selling Nvidia stock over the last year, while piling into many other names in the chip realm.
Let’s take a look at what moves Yass has made over the last year, and assess why his decision to raise SIG’s stake in Nvidia’s largest competitor could be a good idea.
Thanks to a nifty tool called the 13F filing, investors can find itemized breakdowns of all the buys and sells institutional money managers make on a quarterly basis. I’ve detailed some of SIG’s activity among leading chip stocks over the last year. All numbers represent millions of shares:
Company
Q3 2023
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Nvidia
43.6
31.9
72.0
19.5
13.9
Advanced Micro Devices
1.9
1.3
2.0
1.4
2.9
Micron Technology
1.0
1.7
1.3
4.8
6.9
Taiwan Semiconductor
4.4
2.7
3.5
2.0
1.5
Intel
4.6
2.9
7.6
7.4
9.9
Broadcom
4.0
3.7
3.2
5.6
1.3
Data source: Hedge Follow. Table by author. Note: All numbers represent millions of shares.
The main takeaway from this data set is that SIG has reduced positions across Nvidia, Taiwan Semiconductor Manufacturing, and Broadcom over the last year, all while significantly increasing positions in Advanced Micro Devices(NASDAQ: AMD), Micron Technology, and Intel.
In the chart, you can see that between Q3 2023 and Q3 2024, the three highest-performing stocks among this peer set of semiconductor businesses are Nvidia, Broadcom, and Taiwan Semiconductor — all of which Yass has been reducing his position in over the last 12 months.
In my eyes, SIG is taking profits off the table in names that have outperformed their peers and beginning to reinvest profits in emerging opportunities in the chip landscape. And from my point of view, AMD looks like the most tempting alternative to Nvidia at the moment.
The primary reason Nvidia stock has been so explosive over the last couple of years is due to the company’s head start in the graphics processing unit (GPU) market. GPUs are important pieces of hardware used for generative AI development. Given a lack of competition, Nvidia has been able to establish a dominant market presence in the GPU landscape.
However, this dynamic is slowly changing, and I don’t think many investors are quite recognizing that notion just yet. For the quarter ended Sept. 30, AMD generated $6.8 billion in revenue — up 18% year over year. By comparison, Nvidia’s third-quarter revenue rose 94% year over year to $35.1 billion.
It’s fair to say that AMD’s growth and size aren’t even in the same universe as that of Nvidia. However, there is a subtle nuance that’s worth pointing out — one that I think lends credence to the idea that AMD could be on the precipice of something enormous.
While AMD’s total revenue increased by just 18%, sales from the company’s data center business soared 122%. This is important because data center revenue is AMD’s largest source of business, and also because this level of growth is nearly identical compared to Nvidia’s data center operation — which is growing at 112% annually right now.
When you consider that AMD has a number of new GPUs slated to begin shipping in 2025 and 2026, I think there is a good chance the company begins competing more intensely with Nvidia — especially when it comes to price.
As such, I would not be surprised to see demand trends begin to flow toward AMD as businesses seek to augment their existing Nvidia stack with alternative (i.e., less expensive) options that are still capable of high-performance computing.
Image source: Getty Images.
Right now, AMD trades at a forward price-to-earnings (P/E) multiple of 27.8 — considerably lower than Nvidia’s forward P/E of 33.7.
On the surface, Nvidia’s premium seems warranted. The company is much larger than AMD, and it’s growing at a much more accelerated rate. Moreover, with Nvidia’s next-generation Blackwell GPUs launching imminently, it would appear that no one is even close to catching up.
But as mentioned, AMD’s data center GPU business is actually growing at a commensurate pace to that of Nvidia. Furthermore, the company has a new line of GPUs specifically focused on competing with Blackwell. Even though AMD’s products will be coming to market later than Nvidia’s, I wouldn’t write off the company as inferior.
Nevertheless, the market appears to be discounting the prospects of AMD’s rival GPUs and the impacts they could have on the company’s growth. To me, AMD is sneakily undervalued and looks like a compelling buy-and-hold opportunity before its new chip sets begin to hit the market over the next year.
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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
