Nvidia or AMD: Cathie Wood Trims One Top AI Chip Stock as She Bets on Another

The talk of an AI bubble has intensified recently, fueled by record deals tied to AI-related spending and soaring valuations across chipmakers, cloud providers, and software firms. Investors are increasingly debating whether today’s rapid revenue growth and massive capital flows reflect sustainable demand or the kind of overheated optimism that has preceded past tech corrections.

Cathie Wood is among the many prominent market participants to have entered the conversation, and maybe unsurprisingly, given her penchant for the cutting-edge tech and outré, she does not think we are in a bubble right now.

“I’m not saying there will never be any corrections. Of course there will,” the ARK Investment CEO recently said on the matter, but Wood also went on to remind investors that we are still “at the very beginning of a technology revolution.”

That’s not to say Wood is loading up indiscriminately on all the big AI names out there. This month, Wood has been reshuffling the ARK portfolio, one that features AI stalwarts Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), but after the rejig, it looks like only one of these names has been getting the thumbs up from Wood.

So, let’s find out which AI heavyweight Wood currently favors, and with some assistance from the TipRanks databanks, we can see whether Street sentiment backs the Wood view.

Nvidia

If we’re going to be talking about AI, then it’s only natural Nvidia will be the first port of call. After all, this is a company that has shot to the top of the market cap pile because of its central role in the AI revolution. That is, Nvidia makes the chips used in the data centers that power the game-changing tech. And the reason the Jensen Huang-led company sits on its perch is simply because its chips are a class above the rest.

But that only tells part of the story. What really differentiates Nvidia is its all-encompassing ecosystem, which ties the hardware, software, and developer tools together in a way competitors haven’t been able to match. Beyond just selling chips, it provides the entire platform that developers, startups, and hyperscalers build on. That has helped the company maintain its lead even as rivals work to close the gap.

It was back in May 2023 that Nvidia originally stunned Wall Street with a huge growth spurt, amid a wild increase in demand for its data center and AI chips (remember, the company was seen as more of a gaming specialist beforehand), and almost just as impressively, it has barely taken the foot off the gas since. Beat-and-raise reports have become the norm, with only the size of the beat being the point of discussion. It was more of the same in the recent FQ3 print, which showed revenue that rose by 62.5% year-over-year to $57 billion, in turn beating the Street’s forecast by $1.91 billion. At the other end of the spectrum, adj. EPS of $1.30 beat consensus expectations by $0.04. And looking ahead, Nvidia guided for FQ4 revenue of $65.0 billion, plus or minus 2%, outpacing consensus at $61.84 billion.

The market’s recent wobble might have prompted Wood to make a solid buy here. Last week, via the ARKK fund, Wood purchased 93,374 NVDA shares, a stake currently worth over $16 million.

Reflecting that confidence, Craig-Hallum’s Richard Shannon, an analyst ranked among the top 1% on Wall Street, is keeping an eye out for any signs of a slowdown in demand, but he doesn’t find any right now.

“While we continue to be on the lookout for signs of a slowing environment (and we watch HSDC capex and AI services trends for the best clues), we don’t think it’s in the near future. NVDA remains an execution machine with a full-stack solution that is hard to replicate,” the 5-star analyst said. “NVDA grew its DC Compute sales more than $10B over last qtr, which is a huge acceleration after the $1-2B qtrly sales q/q growth the past two quarters. Ultimately, we think the biggest indicator of a bubble will be if the sales of AI-driven services support it. While the investment is well ahead of these sales, if the sales continue to grow rapidly, and the models continue to show advancement, we believe the investments will continue. So far, the biggest spenders all continue to believe that the risk of under-investing in AI is greater than over-investing.”

To this end, Shannon rates NVDA shares a Buy, while his $245 price target offers a 12-month upside of ~41%. (To watch Shannon’s track record, click here)

The Street’s average price target is even more optimistic; at $257.26, the figure makes room for one-year gains of ~48%. Based on a mix of 39 Buys and 1 Hold and Sell, each, the stock claims a Strong Buy consensus rating. (See NVDA stock forecast)

AMD

Moving on, AMD might just be the natural company to look into after Nvidia. Of all those vying to challenge the AI chip king’s dominance, AMD looks better positioned than most to keep the segment leader on its toes. That was the perception when the AI boom kicked off, but, interestingly, one that became less prevalent after a while. From being seen as ready to mount a serious challenge to Nvidia, the common view became a more negative one. In essence, it was thought that AMD had taken too long to gets it AI game in shape, and that it won’t be able to offer the full stack ecosystem its more illustrious counterpart provides.

But AMD is no stranger to being underestimated, as it was once considered a minor player in the CPU space, a segment dominated by Intel. However, these days the Lisa Su-led company is a force to be reckoned with in that space, having steadily eaten away at Intel’s dominance by offering better prosects, and taking advantage of Intel’s many mistakes.

Can it do the same to Nvidia? That remains to be seen, although Nvidia is hardly putting a foot wrong at the moment, word is that AMD’s upcoming Instinct MI450 AI GPU series has all the attributes to do so. Meanwhile, AMD has nabbed some big deals with OpenAI and Oracle. Against this backdrop, sentiment has improved considerably, and the shares are up by 90% over the past 6 months.

Meanwhile, AMD has also been posting some impressive growth. In Q3, revenue came in at $9.25 billion, up 35.6% YoY and $500 million ahead of expectations. Adj. EPS reached $1.20, trumping Street estimates by $0.03. As for the Q4 guide, AMD called for roughly $9.6 billion in revenue, give or take $300 million, above the analysts’ $9.20 billion forecast.

That is all good stuff, but maybe the big recent gains were on Wood’s mind when she offloaded 174,976 AMD shares in November via the ARKK, ARKF, and ARKW ETFs.

For Goldman Sachs analyst James Schneider, there are plenty of things to like here, but he believes this remains something of a “show me” story.

“Although we believe the company’s financial targets are achievable, they do assume significant gross margin and OpEx leverage and much greater scale, which hinges on the strong ramp of a few key customers including OpenAI,” the analyst explained. “We believe AMD has made strong progress on its Datacenter GPU roadmap, and is delivering ongoing momentum in the core CPU business, but are Neutral on the stock given the model’s reliance on the OpenAI deal, which is expected to be a material driver of the business. We could be more constructive if we gain incremental confidence on this revenue stream and execution timeline in the coming quarters.”

That Neutral rating comes with a $210 price target, suggesting the shares have limited upside of about 5% from current levels. (To watch Schneider’s track record, click here)

9 other analysts join Schneider on the sidelines yet with an additional 28 Buys, AMD claims a Moderate Buy consensus rating. The forecast calls for 12-month returns of 42%, considering the average price target clocks in at $284.67. (See AMD stock forecast)

To find good ideas for AI stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.