A lot of what I do when looking at growth stocks involves looking at what we call leading stocks—those are well-traded, well-sponsored stocks that have both rapid and reliable growth as well as a leading position in a major growth sector that attracts hundreds (or thousands) of institutional investors. As opposed to more speculative names, these “liquid leaders” can produce big gains over time, and often can do so in a relatively smooth way (albeit with shakeouts and tests, of course) as big investors pile in.
When it comes to AI stocks, Nvidia (NVDA) has clearly been the #1 liquid leader of the entire advance going back to 2023, as its AI chips led to a step-function increase in earnings and, of course, a massive growth wave ever since. The stock obviously had a huge run in 2023 and 2024, and after a re-set base (a big, long correction that re-sets the longer-term advance), NVDA came back beautifully from the tariff panic, rallying 11 weeks in a row at one point to hit new highs in August.
However, since then, shares haven’t done anything—two months of no progress after an up-and-down period. Is that abnormal? Absolutely not; in fact, we had NVDA in Cabot Top Ten Trader this past Monday as a setup (we’ll enter if the stock shows solid strength sometime in the next two weeks), so we’re not bearish on it at all. However, while all the numbers and the outlook for the company remain pristine, what’s caught our attention is that the stock is doing nothing even as a major competitor has changed character for the better.
As the title suggests, we’re talking about Advanced Micro Devices (AMD), which has grown decently in recent years but has clearly been a laggard to Nvidia, both in terms of the stock and fundamental growth. However, AMD’s next-generation MI450 AI chip (coming out next year) looks like it could change that—without getting into all the details, it will run on a newer architecture that should improve performance and energy usage versus what Nvidia’s next-generation offering should have; to be clear that doesn’t mean Nvidia will be left in the dust, but at the very least, the gap between the two should close.
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It’s one thing for the company to hype up its products, but what’s changed now is that some huge AI players are stepping up and ordering: OpenAI inked a massive deal with Advanced Micro to buy six gigawatts (each gigawatt should be worth $15 to $20 billion!!) worth of chips, starting in the second half of next year and continuing to 2030. Then there’s Oracle, which will gobble up 50,000 chips (probably 10% of a gigawatt) next year, but many believe there should be a lot more to come as that firm builds out its infrastructure segment. While nothing is for certain, other deals are possible too as the AI spending spree hits fifth gear.
Not surprisingly, AMD soared on the news items as earnings estimates have raced higher, hitting new highs and remaining resilient despite some market shenanigans in recent days.
As a student of the market, what intrigues me most is the chart below: It’s a relative chart of AMD—a falling trend means NVDA is outperforming AMD, while a rising trend means the opposite. Here, see how the relative line fell sharply for most of the prior couple of years as NVDA outperformed … but then the line flattened out for months—and now it’s leapt above the long-term 40-week line, signaling a change in character.
Of course, in the fast-developing AI world, there are a lot of moving pieces, so we’ll have to see how things play out. And, of course, there could easily be room for both NVDA and AMD to do very well, both in real life and the stock market.
But the action of the stocks and the recent big backing of AMD by OpenAI and Oracle make us wonder if some of those huge, institutional owners of Nvidia might trim and shift over to Advanced Micro as its newer chip takes share. If things go right, AMD could be starting a big run.
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