Is this U.S.-China selloff a buy? A top Wall Street voice weighs in
Advanced Micro Devices (NASDAQ:AMD) stock opened up by nearly 35% on Monday morning, following reports that OpenAI is acquiring a 10% stake in AMD. As part of the agreement, AMD will supply OpenAI with 6 gigawatts of AMD’s Instinct GPUs.
The deal is scheduled to start with a 1-gigawatt rollout in 2026.OpenAI will receive warrants for up to 160 million AMD shares (approximately 10% of the company) at $0.01 per share, contingent upon meeting certain deployment milestones and an increase in AMD’s stock price. Not surprisingly, the deal is well-touted by both executives, as seen below:
This creates a true win-win, enabling the world’s most ambitious AI buildout and advancing the entire AI ecosystem. – Lisa Su, CEO and Chair of AMD
The deal with AMD will help OpenAI build enough AI infrastructure to meet its needs.- Sam Altman, CEO of OpenAI
What we find interesting about this deal is that Nvidia recently made a $100 billion investment in OpenAI. Thus, indirectly, Nvidia’s (NASDAQ:NVDA) funds are being put to use by investing in one of its biggest competitors, AMD. The AMD deal is expected to intensify competition in the AI chip market, where Nvidia currently holds over 80% market share.
As a result, AMD chips are expected to ease global AI-related chip supply bottlenecks. Moreover, the deal should pressure Nvidia to innovate more quickly and reduce prices to retain its leadership. For Nvidia (NVDA), it signals a tangible market share risk from AMD’s aggressive push into high-performance AI accelerators, which could erode Nvidia’s premium pricing power and investor confidence if more hyperscalers follow OpenAI’s lead.
Utilities Vs. Staples Is At Extremes
Per our relative analysis, Utilities are the second most overbought sector, while Staples are the most oversold. More often than not, both “conservative” sectors tend to correlate well with each other. That has not been the case recently.
The first table below shows that the correlation between the returns of utilities (XLU) and staples (XLP) is 0.58. While statistically significant, it is well below its longer-term average. The second graphic confirms that sentiment. The relationship is 2.44 standard deviations from its norm. Finally, the third graph shows that the relationship has reached its most divergent point in the last year.
While the relationship can certainly diverge further, we should expect the correlation to increase, which may likely portend relative strength in the staples sector compared to the utilities. We do caution that the divergence is primarily due to a few alternative energy and nuclear-related utilities significantly outperforming the broader utility sector. Thus, a convergence of the relationship may not impact all utilities equally. The high-flying utility stocks, as highlighted in the fourth graphic, may be most at risk.
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