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Quant Guru Jim Simons Takes the Plunge on Micron Technology, Inc. (MU), Throws in the Towel on Advanced Micro Devices, Inc. (AMD) and What About NVIDIA Corporation (NVDA)?

The prophet of profits Jim Simons goes by many impressive names: world’s smartest billionaire, award-winning mathematician, war-time code-cracker. Here, however, we dive into Simons’ role as founder of one of the best performing tech funds of all time, Renaissance Technologies- along with the billionaire’s latest hedge fund moves in 3 key chip stocks: Micron Technology, Inc. (NASDAQ:MU), Advanced Micro Devices, Inc. (NASDAQ:AMD), and NVIDIA Corporation (NASDAQ:NVDA). Renaissance has used its first-rate quant capabilities to record stunning growth, giving it a staggering portfolio value of close to $85 billion. Jim Simons is the only manager to make Forbes annual hedge fund rich list all 15 years the list has been published. During that time, he has amassed an estimated $23.5 billion of personal wealth.

Jim Simons picture

Jim’s love of numbers didn’t begin in the world of finance; far from it. Numbers were just a tool that allowed him to hunt for patterns, the sort of patterns that enabled an award-winning mathematician to crack codes during the cold war for the famed NSA. It wasn’t until he hit his 30s and money became more of a motivation, that he realized this mathematical expertise could be applied to investing.

Now the fund’s Q4 trades have been released for investors to pour over, thanks to 13F forms filed by the fund and published by the SEC. With this in mind, let’s dig deep into three of the fund’s latest- and most interesting- moves:

Micron Technology, Inc. (MU)

Renaissance sold off their entire position in MU last quarter. The dump of 6,730,936 shares was notably worth close to $277 million. Yet, consider that a recently upgraded second quarter guide coupled with a reported shortage in much sought-after DRAM and NAND memory lines would seem to signal nothing but blue skies ahead for the semiconductor manufacturer. Brent Kenwell even said the stock is “too cheap to ignore,” and Dana Blankenhorn with InvestorPlace says it is “still undervalued.” So why does the price swing so low when MU seems to be drowning in positive news?

The answer may be found in the rising fear that Micron’s fortunes are too closely tethered to memory prices. MU stock has never enjoyed the long-term uptrend of a memory manufacturer like Intel; instead, the chip giant has suffered from the same memory price volatility as the likes of Western Digital and Seagate Technology. During the memory shortage of 2014, MU profits peaked at $2.54 per share and the stock climbed to a lofty height a little north of $36, providing a valuation of roughly 14 times earnings. However, then 2016 hit, where the shortage ended; and so did the good news. By mid-year 2016, shares took a deep dive and fell to under $10.

However, in spite of current fears, DRAM memory, which is a much larger segment than NAND continues to show signs of demand outpacing supply. According to a report released by DRAMeXchange, the global supply of DRAM chips is expected to increase 19.6% on-year in 2018, which marks the lowest figure in the past few years. This will be good news for MU and is likely to provide critical support for prices- although Simons’ exit suggests he isn’t prepared to find out what will happen next.

The stock currently has a Strong Buy analyst consensus rating on TipRanks with an average analyst price target of $59.25. Indeed, in the last three months, MU has received 17 Buy ratings vs. just 2 Hold ratings. That gives MU a whopping upside of 38.99%.

Advanced Micro Devices, Inc. (AMD)

Simons’ Renaissance Fund picked up nearly 2.5 million AMD shares in the last quarter, paying close to $25 million for the purchase. There seemed to be some dark clouds on the horizon as Advanced Micro Devices headed into the latest earnings season, but the microprocessor manufacturer was able to turn it all around with a fourth quarter report that beat expectations.

Earnings and revenue both grew year-over-year with a top line spike of 34%, raising adjusted net income to $88 million. The good news keeps coming with AMD projecting $1.55 billion in revenue at the midpoint of its Q1 guidance; that’s a rise of 32% from the same period last year and well ahead of the $1.25 billion analyst consensus estimate.

There are three key contributors from the latest report that could help make 2018 the turnaround year that AMD needs after what had largely been a disappointing 2017:

  1. CPU Sales Continue to Grow – AMD’s computing and graphics divisions provided almost 57% of its revenue in 2017, up nearly 54% from the previous year. The remarkable growth was driven by strong demand for Ryzen central processing units (CPUs) as well as the company’s graphics processing units (GPUs).With the recent launch of Ryzen Mobile CPUs in Q4 of 2017, laptop Original Equipment Manufacturers (OEMs) like Acer, Lenovo, Asus, and HP have been instrumental in creating positive momentum- especially with every announcement made about incorporating the company’s CPUs and GPUs into their forthcoming devices.That momentum is expected to continue as AMD prepares to launch its next generation of more powerful and efficient Ryzen CPUs by mid-2018, likely beating Intel’s 9000 series processors to market.
  2. GPU Market Sentiment Keeps Blowing – A strong demand for graphics processors driven by the growing gaming market and horsepower heavy hardware needs of cryptocurrency miners will push down inventory availability and drive up prices. AMD CEO Lisa Su, confirms that sentiment with a statement saying that crypto miners are “consuming a lot of GPUs.”
  3. Enterprise Business Continues to Grow – More than 35% of AMD’s total revenue comes from its enterprise, embedded, and semi-custom business. Although 2017 saw the segment’s revenue remain flat, there are some encouraging signs in the latest report. AMD says they have “closed dozens of new server deals in the quarter, securing key design wins with education, financial services and hosting companies.” Among them are Microsoft, using the EPYC server processor to power their cloud service and Hewlett-Packard Enterprises, who have also started shipping server systems that utilize the platform.

Overall, TipRanks analyst consensus rating for AMD is a cautiously optimistic Moderate Buy – but digging into the ratings reveals a very mixed picture. In the last three months, AMD has received 7 Buy ratings, 4 Hold ratings and 3 Sell ratings. The average analyst price target of $15.41 gives AMD a potential upside of 30.81%.

NVIDIA Corporation (NVDA)

Simons sold off 2,256,293 shares of the GPU giant. The sale of the massive ditch of Nvidia shares fetched Renaissance more than $436 million. However, this means that Simons missed out on Nvidia’s recent blowout earnings report. When the Nvidia Q4 earnings report made it to print last week it was heralded as “monstrous,” “tectonic,” “massive,” and “firing on all cylinders.” The strong results ushered in another round of price target increases from top analysts. Needham’s Rajvindra Gill (#43 out of 4,743 analysts on TipRanks) and Mark Lipacis of Jefferies (who is ranked 15th), both raised their estimates to $300 (26% upside potential). Meanwhile, Craig Ellis of B. Riley, a Top 5 analyst reiterated a Buy rating and raised his target from $270 to $290 saying “a 5th consecutive year of 35.0%+ y/y Gaming growth is possible.”

There are those who are less optimistic however. Rick Schafer of Oppenheimer stuck with his Perform rating on Nvidia, believing the “risk/reward remains balanced with shares trading over 30x our CY19E.” Nonetheless, Schafer acknowledges the company’s significant potential in the budding market for inference in machine learning: “While NVDA continues to dominate AI training, we believe inferencing remains early days. NVDA believes GPU’s parallel processing performance will prove valuable in inferencing both on the edge and in the cloud. The company remains early in the rollout of inferencing-specific P40 and P4 accelerators. NVDA sees limited competition from Google’s latest multi-chip TPU solution.”

TipRanks currently shows a Buy analyst consensus rating on NVDA with an average analyst price target of $251 suggesting an upside of 7.9%. The stock sits at $232.63 at the time of writing.

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