We recently compiled a list of the 20 Worst Performing AI Stocks of Last Week. In this article, we are going to take a look at where Applied Materials, Inc. (NASDAQ:AMAT) stands against the other AI stocks.
US Stocks in September
This September saw a sluggish start for most US stocks, and large-cap technology stocks were no exception to this trend. The main driving factors for this development include concerns over the health of the American economy resurfacing, particularly in light of the August jobs report. The report underscored the labor market’s weakness in the US, which has not left investors feeling all that secure about the state of the economy.
On the stock side, many investor favorites in the artificial intelligence (AI) space have been doing poorly so far in September, with losses ranging from around 4% to even over 20% for the first week of September. The primary reason for this decline seems to be that investors are just not satisfied with the growth demonstrated by major AI companies at present. While growth is definitely present, it’s continuing to fall short of investor expectations, which have increased exponentially in light of the hype cycle created around AI stocks.
Are We Really In An AI Bubble?
The first week of September was actually the worst week for chip stocks recorded in over two years. Many investors are now beginning to wonder whether AI is worth the amount of money being poured into it, resulting in corporate spending on AI coming under greater scrutiny than ever before. The greater scrutiny is predominantly because of investors and analysts now thinking that many AI stocks are overhyped and overvalued and don’t have the means to justify this hype and valuation – essentially, the main concern is that we’re in an AI bubble that’s on the brink of bursting.
However, as with any high-tension market situation, there are diverging opinions as well. In his September 6 interview on CNBC’s “Closing Bell Overtime,” Deepwater Asset Management’s managing partner, Gene Munster, emphatically stated that we are not in an AI bubble. For him, the bigger problem in the AI space is that every other company today is trying to talk about AI and say that it’s working towards AI incorporation in its operations – something that’s leading to a lot of noise in the market, which is drowning out the voices of companies offering real substance in this space. He thus noted that it’s important for investors to be careful not to invest in just any company that says it’s working with AI and instead to focus on the better, perhaps more boring, options in the market.
According to Munster, the main players to keep your money in are predominantly big tech names, as these are the only companies that are poised to deliver substantial growth instead of just generating noise. However, investors are still confused about whether AI is a good place to invest in even today, which is why we’ve compiled a list of the worst performing AI stocks in September so far and explained whether these stocks are worth picking up or if they’re just temporary beneficiaries of the hype around AI.
Our Methodology
We compiled our list by screening for AI stocks that have seen declines of 10% or above in the first week of September, and then ranked the stocks based on their weekly decline as of Friday, September 6. We have also mentioned the number of hedge funds holding stakes in each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A technician in a clean room assembling a semiconductor chip using a microscope.
Applied Materials, Inc. (NASDAQ:AMAT)
Weekly Decline: 11.53%
Number of Hedge Fund Holders: 77
Applied Materials, Inc. (NASDAQ:AMAT) is another semiconductor materials and equipment company on our list, based in Santa Clara, California. It provides manufacturing equipment, services, and software to the semiconductor display and related industries.
In its second-quarter earnings report, Applied Materials, Inc. (NASDAQ:AMAT) revealed that it generated revenue of $6.7 billion, up 5% year-over-year. Its GAAP operating margin also increased to 28.7%, up by 0.7 points year-over-year. Finally, the company also generated $2.39 billion in cash from operations. Applied Materials, Inc.’s (NASDAQ:AMAT) CEO noted that this growth was driven by demand for the company’s unique and connected portfolio of products and services, which has positioned the company to outperform the market over the long term.
Despite these positive announcements, Applied Materials, Inc. (NASDAQ:AMAT) actually saw its stock price dip in the aftermath – a dip that has continued into September. The primary reason for this may be that semiconductor stocks are not expected to recover fully in 2024, which means that the real growth will only come about in 2025 or 2026 as the industry absorbs excess inventory left over from 2023. This may be discouraging for investors who expect immense growth from semiconductor stocks, especially in the current AI-frenzied market.
Despite this, most analysts consider Applied Materials, Inc. (NASDAQ:AMAT) to be a stock worth buying, especially in light of its growth potential, which spans over the next couple of years. As such, being put off from the stock simply because it’s playing catch up like every other semiconductor player may not be the best strategic move.
Applied Materials, Inc. (NASDAQ:AMAT) was spotted in the portfolios of 77 hedge funds in the second quarter, with a total stake value of $5.5 billion.
Overall AMAT ranks 15th on our list of the worst performing AI stocks last week. While we acknowledge the potential of AMAT as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
