Nvidia, Move Over. It May Be Time for Investors to Make This Stock Their New Top Chip Pick.

As investors seek exposure to the flourishing artificial intelligence (AI) sector, Nvidia has been a clear favorite in the chip market this year. However, according to a recent note from Vanda Research, a contender may be emerging in the form of Advanced Micro Devices (AMD).

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The Vanda Research team suggests that as retail investors re-entered the market amid expectations of a Federal Reserve pivot towards interest rate cuts in the coming year, they initially turned to crypto stocks. More recently, their attention has shifted to the semiconductor sector, driven by the quest for opportunities among Nvidia's competitors.

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Leading this charge into alternative chip stocks is Advanced Micro Devices, whose shares have experienced an upward trajectory since an early December AI event, according to observations from Vanda's Marco Iachini, Giacomo Pierantoni, and Lucas Mantle. The team notes that the past five trading sessions have witnessed record inflows into AMD shares, signaling a potential ongoing trend.

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The Vanda team envisions a scenario where, if the macroeconomic conditions remain favorable to risk-taking and Federal Reserve members maintain a supportive stance, the positive performance and retail flow into AMD could create a self-sustaining feedback loop. Despite AMD being the second most popular retail pick over the past two years, it has significantly trailed Nvidia's rise in 2023, gaining 100% compared to Nvidia's 172%.

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They anticipate that if momentum in semiconductor stocks persists, individual traders could shift their focus to AMD as they attempt to close the performance gap with its main competitor, Nvidia.

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Beyond AMD, other chip companies are also experiencing increased attention. Broadcom, in particular, has seen a surge in retail interest, according to Vanda analysts. They suggest that Broadcom may continue to attract heightened flows as investors search for alternatives to Nvidia.

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However, the note also highlights a concerning development, noting a "striking jump" in out-of-the-money option call turnover for Broadcom. This indicates a notable increase in speculative bets on the company's future performance. The Vanda team issues a cautionary note, stating that an unruly unwinding of these positions could lead to heightened volatility in the coming days.

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In summary, while Nvidia has been the dominant player in the chip market, the recent surge in interest in AMD and other chip companies suggests a shifting landscape. As retail investors seek opportunities in the semiconductor sector, the competition among chip stocks may intensify, potentially reshaping the market dynamics in the coming months.