After the Nvidia Storm, a Shift Towards AMD and Defensive Stocks

A series of adjustments reduces exposure to data centers and reallocates towards defensive consumption. Meanwhile, a shift from Intel to AMD is scheduled. These movements occur as Nvidia faces a governance episode and the prospect of interest rate hikes reignites caution.

Secured Gains and Reduced Exposure to Data Centers

Several transactions have been executed to decrease sensitivity to the investment cycle of data centers and lock in gains. On Monday, the position in Eaton was reduced despite solid results, with a gain of approximately 47%, which mitigates the risk associated with a potential slowdown in hyperscaler spending as data center construction faces increasing obstacles. Eaton provides energy management systems aimed at optimizing energy efficiency. A new position was simultaneously opened in Constellation Brands. This group, which owns Modelo and Corona, is considered undervalued, offers a yield of around 3%, and benefits from positive trends in the beer segment, as well as profit prospects in the event of a relaxation of immigration policies. On Tuesday, the position in Cardinal Health was again reduced by 25 shares after a rise of about 23% since the end of September, securing a gain of 24%, while maintaining a long-term conviction in this health products distributor. On Friday, shares of TJX Companies were sold following a downgrade from Gordon Haskett, which highlighted competition from Ross Stores as well as ongoing issues at Marmaxx; just before the earnings announcement scheduled for Wednesday morning, an average gain of about 113% was realized. The cash released was used to strengthen positions in Constellation Brands and Kimberly-Clark. It is suggested that the market underestimates Kimberly-Clark's ability to turn around Kenvue after its acquisition, with Jim Cramer highlighting the association of Huggies and Kleenex with Tylenol and Band-Aid.

Scheduled Shift from Intel to AMD in Data Center Chips

A rotation is planned: exiting Intel and initiating AMD as soon as trading constraints allow. On Friday, Jim Cramer described the drop in AMD as a "terrible buying opportunity." This shift reflects increased confidence in AMD's ability to capture the surging demand from data centers. The turmoil surrounding Nvidia is seen as likely to open GPU market share to AMD, while the team indicates they are relying more on AMD to meet the rising CPU needs necessary for the operation of AI agents. The CPU argument had motivated the purchase of Intel earlier in the year. The alleged advantage of AMD comes from more flexible designs, facilitating allocation between PCs and servers, a key point as rising memory prices weigh on PC demand. On Wednesday, the public discourse shifted towards exiting Intel and buying AMD; Intel was downgraded to a sell equivalent rating of 3, and AMD was added to the Bullpen. The operation would involve a substantial recognized loss on Intel, with Jim Cramer reminding: "Sometimes, you just have to admit you were wrong," as was the case during the 4th annual Investing Club meeting.

Governance Shock at Nvidia and Market Effect

During the week in question, Nvidia fell by about 13%, counter to a rebound in semiconductors, with another 2% drop on Friday. The selling movement began on Monday following revelations of an investigation by the board into CEO Jensen Huang's relationship with a woman suspected of espionage for China, as well as allegations regarding relationships with two employees, leading, according to these sources, to his resignation on Thursday. Colette Kress, who had long served as CFO, was appointed interim CEO. Jim Cramer approved this appointment but emphasized the uncertainty, believing that a Nvidia without Jensen would be less attractive to many investors. On Tuesday, the stock was downgraded to a rating equivalent to 2, with Jim Cramer indicating he would not add on dips but would not turn his back on the stock, citing the precedent of Apple after Steve Jobs and his confidence in Kress. He also recommended that long-term shareholders with significant gains consider taking profits to protect capital.

A Macro Context Shared Between Weekly Recovery and Inflation Tensions

Despite these upheavals, the S&P 500 posted a weekly gain of 2.5% and the Nasdaq 2.3%, driven by two very strong sessions at the beginning and middle of the week, which mitigated the declines on Tuesday, Thursday, and Friday. Both indices thus recovered a notable portion of the losses following the post-election crash on November 5. However, the week ended under the threat of a more pronounced monetary tightening, with the possibility of several rate hikes at upcoming Federal Reserve meetings weighing on sentiment. Before Friday's opening, the October PPI showed its largest annual increase in nearly four years; although it came in more moderate than expected month-over-month, its annual rate of 6.5% rekindled concerns after a consumer price indicator deemed high on Tuesday.