We recently published a list of 11 Trending AI Stocks On Latest News and Analyst Ratings. Since Advanced Micro Devices, Inc (NASDAQ:AMD) ranks 3rd on the list, it deserves a deeper look.
Investors remain cautious following a major global selloff that shook the markets last week on recession fears. Analyst warnings around sky-high CapEx of tech companies and lack of visibility over returns are also expected to keep tech valuations in check in the coming weeks.
Last month, Roger McNamee of Elevation Partners, while talking to CNBC, highlighted a report from Goldman Sachs that said returns of AI investments might fail to meet investors’ expectations.
“The amount of capital investment in this sector, which is billions of dollars now, is so large that it’s almost unimaginable that we are going to get a rate of return over the next few years that justifies the amount of investment,” McNamee said.
Talking to Bloomberg, JPMorgan Asset Management’s Aisa Ogoshi said that there is some “adjustment” coming for tech stocks as she expects the AI-centric rally to diversify to other sectors.
“The key is to keep an eye on the earnings trends. It’s easy to panic in these times but really, just sit down and look at the numbers and reassess our positioning.”
Asked whether she plans to reduce exposure to AI stocks in the coming days, the analyst said she’d be more “selective” when it comes to AI plays and will increase the quality of stocks in the portfolio.
For this article, we chose 11 trending AI stocks based on the latest news, earnings and analyst ratings. With each stock we have mentioned the number of hedge fund investors. 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).
Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Investors: 124
BofA Securities believes Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of the best beaten-down tech stocks presenting an attractive entry point following the latest selloff.
Advanced Micro Devices, Inc (NASDAQ:AMD) impressed Wall Street with solid second-quarter results amid strong data center revenue. Data center revenue in the period grew 49% year over year.
But can Advanced Micro Devices, Inc (NASDAQ:AMD) continue gaining in the coming months? Analysts are hopeful amid the launch of its Instinct™ MI300 Series accelerators that are designed for AI and HPC workloads. The new chip competes with Nvidia’s H100 AI chip. Advanced Micro Devices, Inc (NASDAQ:AMD) now plans to release new AI chips annually, including the MI325X in Q4 this year, the MI350 in 2025, and the MI400 in 2026. Advanced Micro Devices, Inc (NASDAQ:AMD) said MI350 would be a competitor to Nvidia’s Blackwell.
Advanced Micro Devices, Inc (NASDAQ:AMD) data center business doubled its revenue but this growth was not at the cost of profits. The segment’s operating income increased by 405% compared to the year-earlier period. However, Advanced Micro Devices, Inc (NASDAQ:AMD) data center business is still very small compared with NVDA. It generated about $2.8 billion in revenue vs. $22.6 billion in quarterly revenue for NVDA. But Advanced Micro Devices, Inc (NASDAQ:AMD)’s CPU and GPU businesses are also thriving. Ryzen CPU sales increased 49% year over year and slightly quarter over quarter. Although gaming revenue declined 59% due to decreased PlayStation and Xbox sales, Advanced Micro Devices, Inc (NASDAQ:AMD) Radeon 6000 GPUs saw a year-over-year sales increase.
Advanced Micro Devices, Inc (NASDAQ:AMD) is trading 17% below its 3-year average P/E ratio. The company is estimated to grow its EPS by 43% in the long term, compared to 33% for Nvidia. During the third quarter, its revenue growth is expected to come in at 15% on a QoQ basis. Amid growth forecasts based on new chips and an expected increase in AI spending by other companies, Advanced Micro Devices, Inc (NASDAQ:AMD) forward P/E of 38 makes the stock undervalued at the current levels.
Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”
Overall, Advanced Micro Devices, Inc (NASDAQ:AMD) ranks 3rd on Insider Monkey’s list titled 11 Trending AI Stocks On Latest News and Analyst Ratings. While we acknowledge the potential of Advanced Micro Devices, Inc (NASDAQ:AMD), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.