Cathie Wood buys $14 million of megacap AI stocks

Cathie Wood’s Bold Bet on AI: Why Broadcom and AMD Are Key

When market jitters flared around AI stocks, Cathie Wood didn’t hesitate. Her firm, ARK Invest, swiftly moved to increase its positions in two critical infrastructure players: Broadcom (AVGO) and Advanced Micro Devices (AMD). This move signals a strong conviction in the long-term potential of artificial intelligence, even amidst short-term volatility.

The AI Wobble and Why It’s a Buying Opportunity

Recent market performance reflects a growing ‘show-me’ attitude towards AI. The S&P 500 has experienced a dip of 2%, while the Nasdaq has shed roughly 4% in February, falling over 6% from its recent highs. Investors are questioning whether the current AI boom is justified by tangible returns. However, this pause doesn’t diminish the massive investment pouring into AI infrastructure.

The “Big Four” hyperscalers – Microsoft, Alphabet (Google), Amazon, and Meta – are collectively projected to invest nearly $650 billion in AI-related infrastructure by 2026, a staggering 60% year-over-year increase. This sustained spending suggests that AI isn’t a fleeting trend, but a fundamental shift in technology.

Did you know? The AI infrastructure market is expected to grow at a compound annual growth rate (CAGR) of over 30% in the next five years, driven by demand for faster processing, larger datasets, and more sophisticated algorithms.

Broadcom: The Unsung Hero of AI Infrastructure

While Nvidia often dominates headlines, Broadcom has quietly become a crucial supplier of custom AI silicon for hyperscalers. The company is developing AI ASICs (Application-Specific Integrated Circuits) and XPUs (eXtreme Processing Units) tailored to the specific needs of giants like Google and Meta.

Broadcom’s strength lies in its fundamentals. A recent announcement highlighted a $73 billion backlog over the next 18 months, largely driven by demand from these hyperscalers. AI sales are also projected to nearly double to $8.2 billion in a single quarter. This demonstrates the company’s ability to capitalize on the growing AI wave.

AMD: A Rising Challenger in High-Performance Computing

Advanced Micro Devices (AMD) is emerging as a credible alternative in the high-performance computing space. The company is pursuing a full-stack approach with its Helios platform, offering a comprehensive solution for AI workloads.

AMD’s catalysts are becoming increasingly specific. The company is a preferred partner for OpenAI, with the first 1-gigawatt deployment of its Instinct MI450 GPUs expected in the second half of 2026. Oracle Cloud Infrastructure is also building a massive AI supercluster based on AMD’s Helios rack design, starting with 50,000 GPUs in Q3 2026.

Beyond the Chips: The Importance of Networking

The AI revolution isn’t just about processors. it’s also about the infrastructure that connects them. As AI clusters scale up, networking becomes a critical bottleneck. Broadcom is a leader in high-performance Ethernet switching, providing the essential connectivity for these demanding workloads.

Broadcom’s acquisition of VMware adds an enterprise software dimension, particularly through subscription models, which promises higher margins and improved earnings quality. Currently, Broadcom boasts a gross margin of 77%, exceeding its five-year average of 75%.

The Shifting Landscape of AI Workloads

As AI matures, the focus will shift from training models to continuous, always-on inference workloads. This transition will prioritize efficiency, making custom chips even more valuable. Broadcom’s position within Google’s TPU ecosystem positions it well to benefit from this trend.

Performance Snapshot: Broadcom vs. AMD

6-month return: AVGO +8.95% versus AMD +14.40%
9-month return: AVGO +46.33% versus AMD +73.32%
YTD return: AVGO -3.92% versus AMD -5.17%
1-year return: AVGO +43.99% versus AMD +79.56%
3-year return: AVGO +483.97% versus AMD +158.70%
5-year return: AVGO +666.15% versus AMD +125.79%

Source: Seeking Alpha

Frequently Asked Questions (FAQ)

What is an ASIC?

An ASIC (Application-Specific Integrated Circuit) is a microchip designed for a specific purpose, offering superior performance and efficiency compared to general-purpose processors.

Why are hyperscalers investing so heavily in AI?

Hyperscalers are investing in AI to enhance their cloud services, improve data analytics, and develop new AI-powered applications for their customers.

What is the role of networking in AI infrastructure?

Networking provides the high-bandwidth, low-latency connectivity required to move massive datasets between processors and storage, which is essential for AI workloads.

The current market dip presents a compelling opportunity to invest in companies positioned to benefit from the long-term growth of AI. Cathie Wood’s recent moves suggest a belief that Broadcom and AMD are undervalued, given their critical roles in the AI infrastructure landscape.

Ready to dive deeper? Explore our other articles on AI investing and semiconductor technology to stay ahead of the curve.