Every quarter, I analyse large investment managers’ 13F filings. These regulatory filings reveal the shares that the managers have been buying and selling (in the previous quarter). Recently, I took a look at the filing for Baillie Gifford, which runs the popular Scottish Mortgage Investment Trust. And one thing jumped out at me – the firm just made a huge bet on an under-the-radar growth stock.
A high-conviction trade
The stock I’m talking about is Advanced Micro Devices (NASDAQ: AMD) or ‘AMD’ for short. It’s a leading designer of high-performance computer chips.
According to the 13F filing, Baillie Gifford purchased 8,728,172 AMD shares during the first quarter of 2023, boosting its holding by 7,396,755%.
We don’t know the exact price the investment manager paid for the shares. However, whalewisdom.com estimates it was $78.02 each. If we assume that was the price actually paid, that equates to a purchase worth a staggering $681m.
Powering the tech revolution
I can see why the fund managers at Baillie Gifford like this one.
For starters, it has enormous growth potential. AMD’s chips are used to power devices across a range of growth industries including cloud computing, data centres, video gaming, virtual reality, electric vehicles, and artificial intelligence (AI). And revenues are rising rapidly (three-year growth of 250%).
One area that looks particularly interesting right now is AI. According to Bloomberg, Microsoft is providing financial support to help the chip designer expand its offerings in the AI space.
Analysts at Bank of America see this as a bullish development. “AMD is on the verge of another large opportunity in the $80bn AI accelerator market where AMD’s share is effectively zero against leader Nvidia,” wrote analyst Vivek Arya in a recent research note.
A top leader
The company also has an inspirational leader in CEO Dr Lisa Su.
There are not many people who know the semiconductor industry better than Dr Su. Before joining AMD in 2012 (she became CEO in 2014), she built up a ton of experience at companies such as IBM, Texas Instruments, and Freescale Semiconductor. Currently, she serves on the boards of Cisco Systems and the US Semiconductor Industry Association.
Since she took over as CEO of AMD, Su has transformed the company from a business that mainly served the PC market to one that’s exposed to a wide range of high-growth industries.
Reasonable valuation
Finally, the stock’s valuation is a fair bit lower than that of key rival Nvidia.
Currently, AMD sports a forward-looking P/E ratio of around 41 (falling to 29 using next year’s earnings forecast). By contrast, Nvidia’s P/E ratio is 52 (falling to 39).
So, there appears to be some value here on a relative basis.
Would I buy?
So would I buy AMD stock myself?
Potentially. I see it as a good play on the technology revolution we’re currently in the middle of.
One concern I have right now, however, is that the stock has had a huge run this year. Year-to-date, it’s up about 85%.
It means buying it today would be a little risky, in my view. After that kind of run, there’s danger of a significant pullback, to my mind.
So for now, I’m going to keep the stock on my watchlist.
If it falls, however, I may just have a nibble here.
