As CEO and chief investment officer of Ark Invest, Cathie Wood might be best known for her high conviction in speculative opportunities across industries such as genomics and cryptocurrency.
When it comes artificial intelligence (AI), many of Ark’s biggest positions are in volatile stocks such as Tesla and Palantir Technologies. Over the last couple of months, however, Wood has quietly been rounding out her exchange-traded funds (ETFs) with semiconductor stocks.
Let’s explore two AI chip stocks that have recently become rising stars in the Ark portfolio. Is now the time to follow Wood’s moves? Read on to find out.
1. Advanced Micro Devices
While Advanced Micro Devices (AMD -0.45%) has been part of Ark’s portfolio for quite some time, the investment firm began aggressively adding to its position throughout late April and most of May.
According to public trading data, Ark added approximately 800,000 shares of AMD between June 17 and 30. The position is spread across the Ark Autonomous Technology & Robotics ETF, Ark Next Generation Internet ETF, Ark Fintech Innovation ETF, and Ark Innovation ETF. As of this writing, AMD has now become the 11th biggest position for Ark Invest overall.
In fairness, AMD’s rise at Ark has been influenced by some pronounced share price gains in recent weeks too. Since Ark began adding to its AMD position in late April, shares have gained roughly 61%.
In my eyes, AMD’s recent gains can be tied to the company’s accelerating data center business as well as bullish anticipation for its new AI accelerators during the second half of this year.
Data by YCharts.
Nevertheless, even with such a massive move in the share price, AMD trades for roughly 36 times forward earnings. Although this isn’t exactly cheap, shares of AMD are well within their usual valuation range.
My hunch is that AMD is still being discounted by some investors, primarily due to the enormous competitive threat the company faces from Nvidia.
Considering how much momentum is fueling AMD stock right now, I think I’d sit on the sidelines for the time being. To me, the company’s long-term prospects are somewhat ambiguous so long as Nvidia remains king of the chip industry. While there is likely still good money to be made in AMD stock, there are more reasonable price points to build a position.
Image source: Getty Images.
2. Taiwan Semiconductor Manufacturing
Ark complemented its AMD purchases with some exposure to Taiwan Semiconductor Manufacturing (TSM 0.75%) back in May. The firm doubled down on this decision by adding over 190,000 shares of TSMC throughout June.
I see TSMC as the most interesting opportunity within the broader chip landscape. Unlike Nvidia, AMD, Broadcom, or the cloud hyperscalers, TSMC doesn’t specialize in designing its own chipsets. Rather, the company offers industry-leading fabrication services that bring semiconductor designs to life.
This puts TSMC in a unique position as the company stands to benefit from rising spend in AI infrastructure over the coming years, regardless of which specific chipsets are witnessing the most demand.
Looked at another way, investors in TSMC need not overanalyze which chip company will sell the most graphics processing units (GPUs). Rather, an investment in TSMC could be viewed similarly to a call option on ongoing investment in data center infrastructure and AI chips for the long term.
Data by YCharts.
While TSMC has witnessed some notable valuation expansion throughout the AI revolution, the company’s forward price-to-earnings (P/E) multiple of 25 is still reasonable. Unlike AMD, I do not think rising competition is what concerns investors over a position in TSMC, though.
Rather, it’s geopolitical tensions with China that give way to uncertainty over TSMC’s growth prospects. Given the company’s ongoing investments in geographic expansion, though, I think the concerns over China are exaggerated and likely baked into the stock at this point.
As I wrote a few weeks ago, TSMC might be the best bargain in the AI market right now. Compelling secular tailwinds, combined with an industry-leading position in the fabrication market, strong institutional backing, and a reasonable valuation, make TSMC a no-brainer for long-term investors.
Adam Spatacco has positions in Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Palantir Technologies, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
