Dr. David Shaw’s quant king throne rests on a net worth of $5.5 billion, according to Forbes- all thanks to one of Wall Street’s esteemed quant hedge fund firms, D. E. Shaw & Co. The math wizard’s claim to fame: quant trading before it became a brilliant go-to method for investing. It takes a wise billionaire to know how to stir up Wall Street and change the name of the game to quant, with seven of the ten monster hedge fund empires today all towering as quant funds. Shaw paved the way here, a man whose firm manages around $47 billion in assets and grabbed more than $25 billion for its investors closing out 2016. Therefore, it must make chip investors breathe a sigh of relief to see the billionaire-churning genius getting more bullish on Advanced Micro Devices (NASDAQ:AMD) and NVIDIA (NASDAQ:NVDA).
Worthy of note, before Shaw became a quant hedge fund guru, the man was a computer-science professor who devised a quant investing strategy to revolutionize financial trading: one hinging on technology used to trade securities. Unafraid to break with the past, Shaw’s quant fund D. E. Shaw has been in business for three decades now, earning high esteem among financial experts.
Let’s dive in to these bullish plays in the memory chip sector:
A Confident Jump in Advanced Micro Devices
The latest SEC filing reveals Shaw’s hedge fund sees full bullish steam ahead for AMD, leaping to add 1,256,718 shares in the chip giant. This brings Shaw’s stake up to 2,915,966 shares worth $29,305,000, a powerhouse 76% boost in AMD.
Susquehanna analyst Christopher Rolland is not as confident as the quant king’s bullish bet, but the analyst sees fit to change tides from bearish to neutral on the chip giant.
“Intel pushes out 10nm, Ethereum ASIC price hikes, better AMD core 1Q/2Q, and Street cuts 3Q seasonality, de-risking crypto… all compel us to upgrade,” writes the analyst, upgrading from a Negative to a Neutral rating on AMD stock while bumping up the price target from $8 to $11. That said, this still implies a close to 18% downside from current levels. (To watch Rolland’s track record, click here)
Though the analyst cut his rating on the chip giant back in March, sizing up over 20% of the company’s first quarter revenue stemming from Ethereum-related GPU shipments, “a lot can change in two months.” Rolland finds that new factors have come into the question that go “against our negative stance.”
Rolland elaborates: “First, the Ethereum ASIC we previewed from our Asia trip held 3x performance improvements, but fresh price hikes have destroyed its value proposition. Second, Ethereum prices have doubled in the last month, driving a (modest) reacceleration in GPU purchases. Third, AMD posted better than expected results, driven in part by non-mining products (Ryzen/Epyc). Fourth, the Street greatly reduced 3Q sequentials, now well below typical seasonality, de-risking some crypto headwinds…but much still remains. Lastly, Intel unexpectedly pushed out 10nm, which may allow AMD to compete at a similar process technology for the first time in decades.”
What could be the key piece of the puzzle for Rolland boils down to rival Intel’s 10nm push out of volume production into next year. Meanwhile, AMD is slated to sample 7nm Zen 2 productions by the close of 2018. “For the first time in memory, AMD will compete at a similar process technology as Intel, a strong multi-year tailwind,” asserts Rolland, who likewise acknowledges the company’s stronger than anticipated first quarter results. As mining GPU growth continues to wane, the analyst muses that perhaps gains on back of the forthcoming Ryzen 2/Mobile as well as EPYC could “help mitigate” this weakness for the company.
TipRanks suggests a largely optimistic analyst consensus circling this chip giant. Out of 18 analysts polled in the last 3 months, 10 are bullish on AMD stock, 6 remain sidelined, while 2 are bearish on the stock. With a return potential of nearly 13%, the stock’s consensus target price stands at $15.24.
Firing Up Another Almost 2 Million Shares in Nvidia
Not only must Shaw like the prospects he sees with Nvidia in the semiconductor market, he is ramping up his firm’s stake in the company by 1,969,529 shares- a massive 356% lift. Now, D.E. Shaw holds a position of 2,512,087 shares NVDA worth $581,775,000.
Top analyst Matt Ramsay at Cowen echoes Shaw’s upbeat play here, recently having joined the bulls on NVDA, rating the stock an Outperform with a $325 price target. This implies a close to 32% upside from current levels.
In fact, Ramsay says for any Wall Street opinions questioning how “expensive” Nvidia stock is to buy into the opportunity, to put it bluntly, “it ought to be.” Though investors are keyed into all things Datacenter, Gaming, and cryptomania, the analyst spotlights an “auto computing business […] on the cusp on significant high-margin growth;” the very driver that could prove to be “the next leg of the story” for Nvidia.
As Nvidia has evolved from a “PC-leveraged GPU supplier to a diverse parallel computing company,” the analyst sees AI-based computing saturating key markets for the company: gaming, datacenter, prof. visualization, as well as autonomous driving growth. Sizing up key advantage in Nvidia’s automotive computing platform, Ramsay confidently wagers: “In our view, no silicon company has the breadth of solutions and partnerships that NVIDIA has accumulated for end-to-end autonomous driving solutions.” In four years, the analyst bets on robo-taxis as the first major growth driver opening a window to a computing total addressable market worth $4 billion coupled with over $2 billion incremental revenue prospects. Moreover, Ramsay anticipates the company’s auto business can triple in only two years’ time against his expectations, which notably shoot past the Street.
At the end of the day, already on back of a slew of “very impressive growth years,” data center revenue of $1.9 billion for fiscal 2018 is “just scratching the surface of management’s recently updated $50B TAM estimate by C2023 […] While we believe this TAM will likely prove aggressive […] if NVIDIA can capture even half of TAM expansion a third this large – growth would prove remarkable,” contends the analyst. Looking ahead, Ramsay bets on “another year of unchallenged AI training in training in C2018, and a burgeoning inference opportunity allows plenty of room for upside to our ~$6B datacenter revenue estimate in C2020.”
Matt Ramsay has a very good TipRanks score with a 66% success rate and a high ranking of #91 out of 4,810 analysts. Ramsay yields 24.3% in his annual returns. When recommending NVDA, Ramsay garners a whopping 139.8% in average profits on the stock.
TipRanks indicates the bulls outweigh the sidelined sell-side analysts on Wall Street when it comes to Nvidia’s market opportunity. Out of 27 analysts polled in the last 3 months, 19 are bullish on NVDA stock while 8 hedge their bets on the chip stock. With a solid return potential of nearly 15%, the stock’s consensus target price stands at $286.17.