In a recent appearance on CNBC’s Squawk on the Street, Jim Cramer highlighted the evolving landscape of AI data center stocks, following the significant selloff of DeepSeek.
The discussion centered around where Advanced Micro Devices, Inc. (NASDAQ: AMD) stands in comparison to other major players in the industry.
The DeepSeek Selloff and Its Impact
During the selloff, DeepSeek, a leading AI GPU stock, experienced a sharp decline in market capitalization, losing nearly $600 billion. This selloff sparked concern that AI data center capital expenditure would shrink, affecting demand for AI chips.
However, recent earnings calls from top tech companies suggest that the demand for these chips remains robust, challenging the narrative that the selloff would lead to weaker spending.
Despite this rebound, AMD’s stock has not fully recovered to its previous highs. Although it rebounded by 12.5% after a 17% drop, the stock is still down by 6.6%. Analysts note that the resurgence is partly due to strong evidence supporting ongoing demand for AI chips.
Key Metrics to Watch: Energy Spending and GPU Orders
In the wake of the selloff, Cramer pointed to two key factors influencing the future of AI stocks:
- Energy Spending: Investors have flocked to nuclear energy stocks, driven by the need for clean energy to power gigawatt data centers. Cramer emphasized that any reduction in energy spending, or setbacks in major energy projects like the Three Mile Island nuclear reactor revival, could signal a shift in AI data center investment.
- GPU Orders: Despite concerns over reduced demand, earnings calls from major tech firms have painted an optimistic picture, showing that no significant cuts in GPU orders have been made. Cramer previously warned that companies might reduce their orders if AI systems required less power and compute. However, this has not yet materialized.
Chip Manufacturer Revenue Insights
A crucial indicator of AI chip demand came from the world’s largest contract chip manufacturer, based in Taiwan, which reported $8.93 billion in January revenue—marking a 39% year-over-year increase.
While these orders likely predate the DeepSeek selloff, the AI GPU stock saw a 2.7% increase in shares following the announcement, signaling continued optimism in the semiconductor sector.
Cramer’s Take on You.com and DeepSeek
During his CNBC segment, Cramer also mentioned a company called You.com, which he described as being “way ahead” of DeepSeek. Initially, Cramer suggested that You.com’s innovative edge could hurt the GPU company’s position.
However, upon further research, Cramer discovered that the GPU company was, in fact, one of You.com’s major investors. Cramer remarked that this revelation pointed to complex dynamics at play, including external pressures from China, the Biden administration, and the growing influence of hyperscalers.
Advanced Micro Devices (AMD): A Closer Look
Advanced Micro Devices (AMD) stands as a major player in both the CPU and GPU markets, positioning itself as a competitor to NVIDIA in the AI sector.
Although AMD has benefitted from Intel’s manufacturing issues, it still faces challenges in catching up with NVIDIA’s superior-performing GPUs.
Recently, Cramer’s commentary focused on AMD’s disappointing fourth-quarter data center results, which failed to meet investor expectations.
Cramer’s Critique of AMD
Cramer was critical of AMD after the company announced a flat outlook, with AI revenue showing little growth for the first half of the year. Cramer stated, “AMD didn’t help the case.
They basically talked about how things are going to be flat, and that they don’t really have the right chips right now.” He also noted the company’s inability to capitalize on the AI boom in the way that NVIDIA had.
Hedge Fund Interest in AMD
Advanced Micro Devices, Inc. (NASDAQ: AMD) has garnered considerable interest from hedge fund investors, with 107 hedge funds holding stakes in the company as of Q3 2024.
This level of hedge fund participation suggests confidence in AMD’s long-term potential, though Cramer’s assessment indicates that AMD may need to catch up in certain areas, particularly AI chips, to regain market favor.
Despite AMD’s potential in the AI market, the company faces stiff competition, especially from NVIDIA, which continues to dominate the GPU space. While AMD’s stock has shown some recovery, it still has a long way to go to regain investor confidence fully.
Investors should continue to monitor key metrics such as energy spending and GPU orders, as these will play a crucial role in shaping the future of AI data centers and semiconductor demand.
For those seeking stocks with stronger near-term growth potential in the AI sector, there may be more promising opportunities than AMD.
FAQs
What is the impact of the DeepSeek selloff on AI stocks?
The DeepSeek selloff caused a significant decline in market capitalization, but recent earnings calls from tech companies suggest that the demand for AI chips remains strong. However, AMD’s stock has not yet fully recovered from the drop.
What are the two key metrics Cramer is watching for AI stocks?
Cramer is monitoring energy spending and GPU orders as crucial indicators of future AI data center investment.
How is AMD performing compared to NVIDIA?
While AMD has made gains in the CPU market, it still lags behind NVIDIA in the GPU sector, especially for AI applications.