AMD is cutting into Nvidia’s early lead in artificial intelligence for cars.
Jim Keller, a former AMD
chip designer, now works at Tesla
(Keller also previously worked at Apple
) The news is that Tesla is working with AMD on a new custom artificial intelligence chip at the expense of Nvidia
To be sure, a Reuters report said there’s no formal agreement.
Still, let’s explore the dynamics among AMD, Nvidia and Intel
Please click here for an intraday annotated chart of AMD. The most important information for investors to glean from the chart is that the VUD indicator stays strongly green as AMD’s stock price traces an explosive move up. The VUD indicator is the most sensitive measure of supply and demand in real time. Typically when AMD moves up on news, the VUD indicator first becomes green and then turns orange. Green indicates net buying; orange indicates net selling. This happens because as the momo (momentum) crowd runs up the stock, the “smart money” typically sells into the strength.
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Please note from the chart that during the latest AMD price move, the VUD indicator stayed green throughout. There was no selling by the smart money into the strength, as has been the case in the past.
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Not a surprise
At The Arora Report, the news is not a surprise. It was anticipated for the following reasons:
• It is a good practice for companies to not become totally dependent on chips from one company. Companies often seek to diversify.
• It is only a matter of time before Tesla will be competing with electric cars from BMW
It behooves Tesla to develop its own intellectual property. Here Tesla is using AMD intellectual property to design a custom chip. In the process, Tesla will build significant intellectual property of its own.
• AMD had a relationship with an ex-staffer now at Tesla.
There is no significant financial impact on AMD and Nvidia.
Stocks often move on sentiment. The news boosts sentiment on AMD. The sentiment on Nvidia should be dented, but expect the effect to be mild as Wall Street analysts rush to defend Nvidia. Many Wall Street analysts have “buy” ratings on Nvidia, hence they are predisposed to defending Nvidia.
Bad day for Intel
The simple fact that, in spite of its significant efforts, Intel was not able to get in Tesla but AMD did, makes for a bad day at Intel.
Should you buy AMD, Nvidia or Intel?
The best way for investors to decide on which stocks to buy is to focus on potential risk-adjusted returns.
In plain English, it means returns in excess of those commensurate with the risk taken. For example, Nvidia could go to $250 but it could also fall to $90. As such, risk in Nvidia is fairly high. In contrast, the probability of getting the same return as Nvidia in Intel is lower but the risk is also lower. Intel also pays a nice dividend.
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The Arora Report provides clear signals based on risk-adjusted potential on these stocks to buy, sell or hold including buy zones, target zones, stop zones and appropriate quantities. All of the stocks mentioned here move on the news, and sentiment can shift on a dime. For this reason, it is important for these positions to be reviewed regularly, investors to stay nimble and have protective measures in place. The objective of investors should be to consistently make money and avoid the yo-yo of making money and then losing it.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.
Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.