Right now, there’s no better area to invest than artificial intelligence (AI). Over the past two years, the most lucrative AI opportunities have been concentrated in a small cohort of mega-cap tech stocks known as the “Magnificent Seven.” And within the Magnificent Seven, semiconductor darling Nvidia has emerged at the forefront of the peloton.
On the surface, investing in Nvidia makes perfect sense if you want exposure to AI. However, smart investors understand that sometimes the most obvious opportunities don’t necessarily make for 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 past year, while piling into many other names in the chip world.
Let’s take a look at what moves Yass has made over the past year, and assess why his decision to increase SIG’s stake in Nvidia’s biggest competitor could be a good idea.
Thanks to a handy tool called the 13F filing, investors can find a detailed look at all the purchases and sales that institutional money managers make on a quarterly basis. I’ve detailed some of SIG’s activity among the leading chip stocks over the past year. All figures represent millions of shares:
Data source: Hedge Follow. Table by author. Note: All figures represent millions of shares.
The main conclusion from this data set is that SIG has reduced its positions at Nvidia. Taiwanese semiconductor manufacturingAnd Broadcom over the past year, while holdings in the sector have increased significantly Advanced micro devices(NASDAQ: AMD), Micron technologyAnd Intel.
NVDA data by YCharts
In the chart you can see that between the third quarter of 2023 and the third quarter of 2024, the three best performing stocks in this group of semiconductor companies are Nvidia, Broadcom and Taiwan Semiconductor – all of which Yass has reduced its position in recent years. last 12 months.
In my view, SIG is taking profits off the table in names that have outperformed their peers and starting to reinvest profits into emerging opportunities in the chip landscape. And from my point of view, AMD seems like the most tempting alternative to Nvidia right now.
The main reason why Nvidia stock has been so explosive in recent years is due to the company’s lead in the graphics processing unit (GPU) market. GPUs are important hardware components used for generative AI development. Due to a lack of competition, Nvidia has managed to gain a dominant market presence in the GPU landscape.
However, this dynamic is slowly changing, and I think many investors are not yet fully embracing that idea. For the quarter ended September 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 Nvidia’s. There’s a subtle nuance worth pointing out, though: one that I think lends credence to the idea that AMD could be on the brink of something huge.
While AMD’s total revenue rose just 18%, revenue from the company’s data center business rose 122%. This is important because data center revenue is AMD’s largest source of revenue, and also because this level of growth is almost identical to that of Nvidia’s data center business – which is currently growing at 112% annually.
Considering that AMD has a number of new GPUs set to hit the market in 2025 and 2026, I think there’s a good chance the company will compete more intensely with Nvidia – especially when it comes to price.
As such, I wouldn’t be surprised if demand trends start to flow towards AMD as companies look to expand their existing Nvidia stack with alternative (i.e. cheaper) options that are still capable of high-performance computing.
Image source: Getty Images.
Currently, AMD is trading at a price-to-earnings ratio of 27.8 – significantly lower than Nvidia’s price-to-earnings ratio of 33.7.
At first glance, Nvidia’s premium seems justified. The company is much larger than AMD and is growing much faster. Plus, with Nvidia’s next generation of Blackwell GPUs launching soon, it doesn’t seem like anyone is even close to catching up.
But as mentioned, AMD’s data center GPU business is growing at a pace commensurate with Nvidia’s. Additionally, the company has a new line of GPUs specifically aimed at competing with Blackwell. Even though AMD’s products will hit the market later than Nvidia’s, I wouldn’t write the company off as inferior.
Nevertheless, the market seems to be discounting the prospects of AMD’s rival GPUs and the impact they could have on the company’s growth. To me, AMD is secretly undervalued and looks like an attractive buy-and-hold opportunity before its new chipsets hit the market in the coming year.
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Adam Spatacco has positions at Nvidia. The Motley Fool holds 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.
Billionaire Jeff Yass has increased Susquehanna’s position in Nvidia’s biggest competitor by 94%. Time to buy? was originally published by The Motley Fool
