We recently published a list of the 8 Best AI PC Stocks to Buy Now. Since Advanced Micro Devices Inc. (NASDAQ:AMD) ranks 4th in the list, it deserves a deeper look.
When the AI revolution began with the launch of ChatGPT, no one would have thought that down the road it would bring a huge growth catalyst for the PC industry, notorious for its cyclical nature and unpredictability. Fast forward to today, everyone is talking about PCs equipped with AI-focused equipment capable to process generative AI workloads. But in just a matter of few months why did the market feel the need for AI PCs? It all boils down to costs. GPT-4 costs $0.03 per 1,000 tokens for prompts and $0.06 for completion according to Microsoft’s estimates. Consider millions of users prompting LLMs from their phones and computers. The costs of scaling such systems are not feasible. That’s why the market thought allowing users to process AI-intensive workloads natively instead of using the Cloud is the future. And that caused the AI PC boom. Tech market analyst firm Canalys says AI PC shipments are expected to soar to 170 million in 2027, from 25 million in 2022. That would be a 60% share of the total PC market. The firm also expects AI PC shipments to double from 2023 to 2024 and double gain from 2024 to 2025.
Canalys also expects vendors to ship 205 million AI-capable PCs in 2028, representing a CAGR of 44% from 2024 through 2028.
For this article we scanned Insider Monkey’s database of 919 hedge funds and picked 8 AI PC stocks with the highest 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
Advanced Micro Devices Inc. (NASDAQ:AMD) is making waves with its new AI PC offerings. Earlier this month, Advanced Micro Devices Inc. (NASDAQ:AMD) revealed new AMD Ryzen™ AI 300 Series processors equipped with Neural Processing Unit (NPU)1. Advanced Micro Devices Inc. (NASDAQ:AMD) has also introduced next-gen AMD Ryzen™ 9000 Series processors for desktops. Citi recently said in a report that Advanced Micro Devices Inc. (NASDAQ:AMD) is expected to take about 10% of the data center GPU market. This market share would be worth about $15 billion according to Citi’s calculations. Citi analyst Christopher Danely reiterated a Buy rating on the stock with a $176 price target.
Advanced Micro Devices Inc. (NASDAQ:AMD) is a pioneer when it comes to AI PCs. Advanced Micro Devices Inc. (NASDAQ:AMD) announced AMD Ryzen 7040 in January last year. It was the first chip to have built-in AI acceleration. Advanced Micro Devices Inc. (NASDAQ:AMD) later launched Ryzen 8040. Laptops powered by AMD’s Ryzen AI 300 series are expected to hit the market by July this year.
Advanced Micro Devices Inc. (NASDAQ:AMD) is also a strong player in the data center space. Advanced Micro Devices Inc. (NASDAQ:AMD) has teased 5th Generation Epyc Gen CPUs (codename Turin) and their Instinct MI-300 series GPU accelerators. Advanced Micro Devices Inc.’s (NASDAQ:AMD) serve chips are built on Zen5 core CPU architecture.
Average analyst estimate for Advanced Micro Devices Inc. (NASDAQ:AMD) is $187.2, which presents an upside potential of 17%. Wall Street analysts expect Advanced Micro Devices Inc. (NASDAQ:AMD) to grow 33% this year and 59% next year. For the next five years the growth will then moderate to 32% on a per-annum basis, which is still high. Based on Advanced Micro Devices Inc.’s (NASDAQ:AMD) 2025 EPS forecast, the stock is trading at around 28.6X forward P/E ratio, which isn’t high given Advanced Micro Devices Inc.’s (NASDAQ:AMD) growth trajectory and catalysts.
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 4th on Insider Monkey’s list titled 8 Best AI PC Stocks to Buy Now. 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 Advanced Micro Devices Inc. (NASDAQ:AMD) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
