Meta's Potential $100 Billion AMD Investment Is Letdown for Nvidia

Shares of Advanced Micro Devices (AMD)  jumped higher by 8.7% on Tuesday, after Meta Platforms (META)  announced a huge investment in the AI chip maker. 

In a deal with a potential value of $100 billion, Advanced Micro Devices will supply AI chips and hardware to Meta Platforms. In return, Meta Platforms will buy up to 160 million shares — up to 10% — of AMD stock.

The goal of the agreement is to generate 6 gigawatts of data center capacity for Meta over the next five years. Global data center capacity is currently estimated to be near 120 gigawatts (GW), and that figure is expected to climb above 200 GW by 2030.

Analyzing AMD's Chart 

Late last year, we began to reduce our positions in AI chipmakers. This was partly because our positions in Advanced Micro Devices, Nvidia (NVDA)  and Broadcom (AVGO)  had grown significantly. We were also concerned that capital was rotating away from tech stocks, as the broader market began to outperform the AI chip sector,

Although we still maintain a reduced position in Advanced Micro Devices, we’re not inspired to add shares on this news. That’s because Advanced Micro’s chart has spent the past five months forming a double top (shaded yellow). 

That bearish pattern suggests the stock could possibly fill a gap left over from October of last year (point A), a move that would drive AMD down to the $170 area. It would also push the stock below its 200-day moving average (red), currently located near $185.

I’m not suggesting that this decline is inevitable, but it’s a possibility we can’t ignore.

Advanced Micro Devices was on the verge of breaking down from that pattern just prior to Tuesday’s announcement. Despite Tuesday’s bullish price action, AMD is still down 3.5% for the year.

AMD's Gain Is Nvidia's Loss 

AMD’s deal with Meta Platforms can be viewed as a disappointment for Nvidia. Shares of that California-based AI chip maker have been trapped in a sideways range between $170 and $210 (shaded yellow) for the past six months.

As for Meta Platforms, this name is well off its highs. The stock is basically flat on the year, but has declined 15% over the past six months. Meta Platforms needs to stay above $620, the location of its supportive trend line (black diagonal line), and climb back above its 50-day (blue) and 200-day (red) moving averages. 

Bottom Line

Advanced Micro Devices, Meta Platforms and Nvidia are all victims of their own success. These stocks have had an amazing run over the past five years, and due to the advance of AI, those moves are arguably justified. 

However, momentum has shifted to other areas, such as consumer staples, hotels and leisure, and homebuilders. We're keeping our reduced positions in Advanced Micro Devices and Nvidia while continuing to rotate funds into more favorable market sectors. 

At the time of publication, Ponsi was long AMD and NVDA.