On Thursday, Stephanie Link of Hightower Advisors told CNBC that she sold every Nvidia (NVDA) share she owned and poured the money into Micron Technology (MU).
She sold the shares only hours after Nvidia’s board accepted Jensen Huang’s resignation. The former Nvidia CEO resigned after a personal scandal came to light. The scandal involved a woman whom U.S. officials have described as a suspected Chinese intelligence asset.
When I first saw the headline, the first thing I thought was, if a money expert like Link is selling Nvidia, should ordinary investors pay more attention to Micron too?
Why Stephanie Link sold Nvidia for Micron
Link is the chief investment strategist at Hightower Advisors and a regular voice on the CNBC Halftime Report Investment Committee. She has more than two decades of experience in portfolio management. On the Thursday, Nov. 12 CNBC Halftime Report, she said she still expects Nvidia to post a strong third-quarter report on November 17, with about $300 billion in free cash flow projected for next year.
However, her concern is that Nvidia’s share price will not respond to those numbers while federal investigators look into the situation, and during the leadership transition.
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“Nvidia is going to have a great quarter next week,” Link said, according to CNBC. “But the stock is not going to trade on fundamentals right now.
Meanwhile, she called Micron a cleaner choice, praising its “clean fundamentals, clean story, and cheap stock.” Over the past week, Nvidia fell roughly 12% while Micron increased by about 12%.
How the Jensen Huang scandal changed things
Two scandals surrounding Nvidia’s former CEO came to light one after the other. U.S. and Singaporean authorities had been investigating a possible chip embargo violation that was linked to Huang’s personal relationship with a woman suspected to be a Chinese intelligence asset, TechCrunch reported. Then a second affair involving a senior Nvidia vice president was also reported by The New York Times.
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Nvidia’s board opened an internal investigation on November 10 and held an overnight emergency meeting about the situation on Wednesday. By Thursday morning, Huang had resigned after serving as CEO for 33 years. Chief Financial Officer Colette Kress stepped in as interim CEO, according to a company announcement filed with the SEC.
When a company loses a top leader like Huang, the share price can swing on political headlines without there being any issues with earnings. Link said she would consider buying Nvidia again once the company picks a strong permanent leader.
Micron shares climbed about 12% over the past week as money managers rotated out of Nvidia.SOPA Images / Getty Images
What makes Micron the “cleaner” AI name
Micron makes the memory chips that AI servers need to process large amounts of data. Nvidia’s graphics processors need these memory chips to run at full speed. That role places Micron at the heart of the AI build-out, and the company doesn’t have any of the political and transition issues now attached to Nvidia.
Micron’s valuation is also cheaper. MU trades at a price-to-earnings ratio of about 11, which is well below most AI peers. Shortages in memory chips have also pushed prices higher. In addition, TradingView reported that the company holds roughly $150 billion in remaining performance obligations, which are customer orders that are already locked in.
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However, some analysts have a different opinion from Link. Paul Meeks of Freedom Capital told CNBC that Nvidia’s drop makes the shares “a buy with both hands” because the valuation has fallen to “stupid” levels.
What investors can take from the swap
An AI stock can fall for reasons that have nothing to do with its products. Things like a leadership scandal or a federal probe can temporarily affect the stock. That’s why spreading money across memory makers like Micron, GPU designers like AMD (AMD), and custom chip makers like Broadcom (AVGO) can reduce the damage when one stock falls.
New investors should also note that memory prices rise and fall in cycles. If AI spending cools, Micron’s profits could swing sharply. Link’s swap from Nvidia to Micron shows that there is more than one company worth watching in the AI trade.
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