First, do no harm. That Hippocratic Oath is how I feel about Advanced Micro Devices (AMD) and Nvidia (NVDA) — the two hottest semiconductor companies in this market — and I can tell that many people hate my view.
They hate it because they believe that I am way too negative, or even encouraging short sellers to step up to the plate and bet against these two stocks.
Nothing could be further from the truth.
I think that for the moment AMD does have a slight lead on Intel (INTC) in some key areas of speed. Plus, AMD’s chips are used to mine cryptocurrencies like Bitcoin and Ether, which are multi-billion-dollar markets — and growing. It has terrific gaming chips — and gaming is a monster-sized market, especially in the stay-at-home economy that we have now. AMD, under the incredible care of CEO Lisa Su, has fixed its balance sheet — giving it the staying power that it has often lacked in the past. That has allowed the company’s stock to be much more of a steady player, rather than a “swing for the fences” stock, something that I can’t stand because of the volatile nature of the beast.
Nvidia? What can I say. I don’t know if I have ever seen a semiconductor company as on fire as this one — and it has all the feelings of Intel in the 1990s, which went from $1 to $72 in 10 years’ time. I don’t even want to hazard where that would put the stock right now, for fear that it would make people too bullish.
That said, Nvidia has the best chips for autonomous driving. It has the most-efficient chips for data servers — and they are faster yet use much less energy. It has by far the finest gaming chips — which have even caused fabulous outfits like Take Two Interactive (TTWO) to redesign games to be even more life like.
Its chips power the artificial intelligence of so many of the great companies out there, because the chips make voice response so easy. They even power the artificial intelligence behind the Adobe Sensei that gives us the amazing interactive drawings that I saw this morning when I interviewed Adobe Systems’ (ADBE) Shantanu Narayen, the company’s brilliant CEO.
So what’s the deal then? Why am I saying that we have to be careful with these stocks, if over the long term they are going to go much higher — which I think they can?
First, I understand psychology. AMD’s stock is as hot as a pistol. But back in early May, it plummeted from $13 to $10 overnight. That drove out a lot of the individual investors, who ran from the stock for fear something was wrong.
The stock of Nvidia languished around $100 from November 2016 to May of 2017 before rocketing to the $150s. Maybe people don’t recall, but during that period of underperformance, after a point where it was the best performer in the S&P 500, so many retail investors were shaken out that I was pilloried for still liking the company.
My point? Both of these stocks have moments where they can either get hammered or cool off and meander with sharp intraday declines. If you want to own them, I am sanctioning buying some now. All I ask is that you save some cash for buying more later, because with both, your first buy is not likely to be your only buy.
Right now you are chasing AMD. I don’t like chasing. Nvidia’s stock just had a huge swoon. It will again. That’s when you want to buy the rest. If neither ever comes down again, you will own some stock. But if they follow their old patterns, a better price could await.
