Noted tech investor Cathie Wood has used the recent stock market selloff to expand several of the existing positions in her ARK Invest funds.
One of the recent buys Wood made was the purchase of about 119,000 shares of semiconductor manufacturer Advanced Micro Devices (NASDAQ:AMD) for approximately $11.4 million.
Why is Cathie Wood buying AMD now, and what could this purchase reveal about Wood’s broader semiconductor investing strategy?
AMD’s Growth Appeal to Cathie Wood
As a high-growth tech investor, Wood’s primary investment thesis for AMD hinges on the business’ outsized potential for future growth as the market for AI chips continues to expand.
AMD is increasingly staking a claim as an alternative to NVIDIA, a fact that would allow revenues and earnings to skyrocket in coming years if demand for AI data center processors continues apace. Last year, AMD even released a new chip designed specifically to compete with NVIDIA’s Blackwell GPUs.
AMD’s growth potential was on full display in its Q4 and full-year 2024 earnings report. Q4 saw the company’s revenue reach a record of $7.7 billion. For the full year, revenue rose 14% to $25.8 billion. Gross margin also improved from 46% in 2023 to 49% in 2024. Operating income soared from $401 million to $1.9 billion, and operating margin more than tripled from 2% to 7%.
These improvements in the company’s financial metrics were also strongly reflected by its 2024 bottom line. Diluted earnings per share last year reached $1.00, almost double the $0.53 AMD reported the year prior.
Looking forward, analysts expect to see this trend of strong EPS growth continue well into the future. Through the rest of this decade, AMD’s earnings are projected to keep growing at a rate of nearly 28% annually.
Wood’s AI Bullishness
Aside from AMD’s increasingly attractive position as a major AI chip supplier, it may be useful to look at Cathie Wood’s view of the AI market as a whole to understand her bullish take on AMD.
Wood, known for assigning extremely high valuations on the basis of technological innovation, believes that AI will be enormously valuable in the coming years. Recently, she even weighed in on AI software companies like Palantir and Amazon and made the forecast they will generate as much as $8 in revenue per dollar they spent on the hardware.
If Wood’s AI bullishness proves to be justified, chipmakers like AMD could enjoy extremely long growth runways as demand for their processors continues to heat up. This view also likely informed another one of Wood’s purchases in the last month, namely the decision to buy $15 million of NVIDIA shares while they were beaten down in early April.
Taking this purchase into account, it seems that Wood is trying to gain broad-based exposure to the AI chip market as a whole while prices are low.
Price Is the Simplest Explanation for Wood’s AMD Buy
Perhaps the best explanation for Wood’s decision to load up on AMD shares is the fact that the price of a stock she already liked had sunk to well below her average cost basis.
Wood bought shares in each of the last three quarters of 2024 at prices far higher than AMD trades for at the moment. ARK’s average cost basis across its AMD holdings is about $136.
With prices now retreating below $100 per share, Wood appears to have been taking the opportunity to buy a company she has happily paid over $180 per share for in the recent past at a much more attractive price.
With that said, AMD still looks fairly expensive at today’s prices, even after breaking below $100. Shares are trading at nearly 100x earnings, though the price-to-sales ratio of 6.3 is a bit more reasonable.
If AMD successfully capitalizes on its growth opportunity over the next several years, though, there is a chance that the stock will still deliver some sizeable returns. The average price target for AMD shares is currently $133.84, more than 35% above the last close of $98.80.
Investors should note, however, that the range of analyst price forecasts for AMD is extremely wide. Targets run from as low as $70 to as high as $200, leaving anything from significant losses to a single-year doubling on the table as possibilities.
While AMD still enjoys a consensus buy rating, the 24 buy ratings assigned to the stock are narrowly followed by 17 hold ratings. With this much uncertainty about AMD’s near-term potential, it’s quite possible that the shares could face elevated volatility as the market tries to work out an appropriate price for the stock.
Considering all of the above, we can piece together a fairly clear picture of Cathie Wood’s motivation for buying AMD.
Why Did Cathie Wood Buy AMD?
As a company that’s staking out a strong second-place position in the AI chip space, AMD enjoys a huge growth opportunity in a market that Wood is exceptionally bullish on. As suggested by her ownership of both AMD and NVIDIA, Wood’s strategy seems to be investing in the AI chip market as a whole, rather than trying to pick a single winner.
AMD is also attractive in its own right as a business. The company’s 2024 growth was nothing short of remarkable, and the continued demand for AI data center capacity will likely keep it expanding at an attractive rate for quite some time to come. Even if NVIDIA remains the 800-pound gorilla of AI chips, AMD could still experience rapid growth due to the sheer scale of chip demand.
Finally, Cathie appears to have taken AMD’s selloff as a chance to do some opportunistic buying. With the stock already appearing in the ARK portfolio, Wood had already done her homework on AMD and decided that it was worth buying at much higher prices.
When the opportunity to buy more of the company at a significant discount presented itself, therefore, she made the decision to deploy capital in pursuit of what could be attractive returns in the event of an AMD recovery.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.