Each quarter, investors get a glimpse into which stocks "smart money" investors on Wall Street are buying and selling thanks to a nifty tool called the Form 13F. These filings are required by the Securities and Exchange Commission (SEC), and essentially serve as an itemized breakdown of what stocks large money managers bought and sold during the most recent quarter.
Beyond traditional financial institutions such as hedge funds and banks, corporations are also required to file a 13F if they also own positions in other public companies. Let's explore what investments Amazon made during the first quarter, and assess what it could mean for Nvidia in the long run.
Is this Amazon's next big-ticket AI investment?
According to its most recent 13F, Amazon holds stock in nine public companies. Among its long-term positions are electric vehicle (EV) manufacturer Rivian Automotive as well as semiconductor stock Marvell Technology. During the first quarter, Amazon complemented its exposure to chip stocks by initiating a position in Advanced Micro Devices (AMD -1.13%). Per the filing, Amazon purchased 822,234 shares of AMD -- worth about $84 million at its current price.
Why might Amazon be interested in AMD?
Over the last couple of years ago, Amazon has invested $8 billion into an artificial intelligence (AI) start-up called Anthropic. Per the terms of their partnership, Anthropic uses Amazon's cloud infrastructure, Amazon Web Services (AWS), to train its generative AI models. Furthermore, Anthropic also leverages Amazon's custom silicon chips -- dubbed Trainium and Inferentia.
Since Anthropic has become a new pillar supporting AWS, the cloud infrastructure business has accelerated both revenue growth and operating margin. This is important, as these dynamics underscore that Amazon is already generating strong unit economics on its AI-related investments.
This provides Amazon with a high degree of financial flexibility, which it can use to make further investments in other pockets of the AI realm. This is why I think the investment in AMD is so notable. Amazon already uses a combination of its in-house chips with Nvidia's GPU architecture.
Image source: Getty Images.
However, by investing in AMD, Amazon may be looking to complement its current chip stack -- ultimately making moves to further migrate away from Nvidia. Given Amazon is doubling down on AI infrastructure projects, including data center buildouts, I'm optimistic that AMD has a lucrative opportunity to emerge as a key partner to the cloud hyperscaler and begin to encroach on Nvidia's market share.
Is AMD stock a buy right now?
As of this writing, AMD's forward price-to-earnings (P/E) multiple is 29. For context, the average forward P/E across the S&P 500 index is about 20. The disparity between AMD's forward P/E compared to that of the S&P 500 might suggest that the semiconductor stock is a bit pricey. I don't necessarily see it that way, however.
Per the graph below, investors can see that AMD's forward P/E has been on the decline for a year now. To me, this suggests that investors may have some questions over the company's growth prospects. Taking this a step further, my suspicion is that investors are doubtful that AMD's growth will ever match that of Nvidia.
AMD PE Ratio (Forward) data by YCharts
To me, that isn't the best approach when evaluating an investment in AMD. Instead, I'd encourage investors to consider just how quickly the company has scaled its data center GPU business over the last year while winning over the likes of Meta Platforms, Microsoft, and Oracle as key customers. Just like Amazon, all of those companies also rely heavily on Nvidia chips -- and yet have recently been turning to AMD as an alternative provider.
When you take these details into account, combined with the fact that AMD is launching new GPU architectures later this year, it could be argued that the stock is actually trading for a reasonable price considering investor expectations seem to be somewhat conservative.
I think Amazon's decision to make an investment in AMD adds validity to the chipmaker's reputation, and I wouldn't be surprised if the company becomes an integral part of Amazon's AI infrastructure roadmap.
I see AMD stock as a no-brainer buying opportunity right now. Investors may want to consider a position in AMD, because its prospects could be more robust in the long run compared to Nvidia, as Nvidia continues to push against headwinds such as custom silicon designs and new architectures from AMD.
