Smaller Players May Outperform Leaders as A “Catch-Up” Trade

In any industry, there’s one leader. Even if there are two big players that seemingly duke it out, one of them is still king of the hill. In the tech space, today’s leaders can become tomorrow’s laggards.

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  • That also means that when a leading stock is soaring, smaller players may be more attractive. Those smaller players could win from a “catch-up” trade when the leader’s momentum slows down.

    Right now, Advanced Micro Devices (AMD) could be the catch-up trade against industry giant Nvidia (NVDA).

    Shares have pulled back after earnings, as investors have noted that AMD isn’t making as much progress in AI compared to Nvidia. But that’s created a relative value, and a stock that hasn’t surged as far over the past few years.

    AMD still has a big stake in auto chips and video gaming, which will continue to prove profitable in the years ahead no matter what happens with AI.

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  • Action to take: With shares down nearly 30% from their all-time high, investors can start building a stake today. Any further declines can be used to add to the position.

    For traders, shares have started to trend higher in recent weeks.

    The July $175 calls, last trading for $5.35, should see mid-double-digit returns or better on a further rally in the weeks ahead. Traders should take a quick profit on any big one-day jump in AMD shares.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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