We recently published a list of 10 Most Oversold S&P 500 Stocks in 2024. In this article, we are going to take a look at where Advanced Micro Devices, Inc. (NASDAQ:AMD) stands against other most oversold S&P 500 stocks in 2024.
Strong economic growth and the prospect of declining interest rates continue to support gains in global equities. That being said, elevated valuations over the past 2 years, mainly in the US, have put global stocks in a vulnerable position, opines Goldman Sachs Research. By the close of last year, the S&P 500 saw one of its strongest 2-year periods of returns since the year 1928. Much of this increase demonstrates better fundamental growth than investors had expected, with higher valuations acting as a significant contributor.
Diversification Remains the Key, Says Morgan Stanley
As per Morgan Stanley, while several investors continue to favour recently successful approaches, like passive exposure to the broader S&P 500 Index, a more diversified investment strategy might provide better risk-adjusted returns. The benchmark US equity index remains richly priced and excessively concentrated. The 10 biggest stocks in the S&P 500 index make up for ~40% of its total market capitalization, making it excessively dependent on certain mega-cap tech companies continuing to exceed ambitious performance forecasts.
=With the S&P 500 anticipated to post a marginal 7% return in 2025, other regions, sectors, and asset classes might become more attractive, says Morgan Stanley. Generally, the stocks and bonds have an inverse relation, offering a natural hedge in diversified portfolios. However, the current trends have demonstrated that such assets are moving in tandem, with both witnessing losses simultaneously, as was seen in 2022. Morgan Stanley believes that the higher bond yields and lower bond prices have been coinciding with lower stock prices. This trend highlights the importance of diversifying beyond traditional asset classes to mitigate risks.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What Lies Ahead for the S&P 500?
While there are expectations of equity markets making further progress over the year as a whole — largely fueled by earnings — they have become vulnerable to a correction either due to higher bond yields and/or disappointments on growth in economic data or earnings, says Goldman Sachs. A fall in interest rates has been related to robust equity returns. In the US, the US Fed’s rate-cutting cycles have often coincided with higher stock prices as long as the broader economy avoids recession.
Amidst a favorable backdrop, Goldman believes that 3 main factors complicate the outlook for the stock rally. First, the pace of recent gains reflects much of the optimism the analysts expect regarding economic growth. Second, elevated valuations might limit the forward returns. Finally, the third factor is the unusually high market concentration. As per Peter Oppenheimer, chief global equity strategist and head of Macro Research in Europe, equities tend to be more vulnerable to growth disappointments due to increased concentration of equity market returns.
Therefore, investors are required to focus on companies trading at reasonable valuations, and that have strong fundamentals.
Our Methodology
To list the 10 Most Oversold S&P 500 Stocks in 2024, we used a screener and filtered out the stocks present in the S&P 500 Index. Next, we shortlisted the ones that have declined significantly over the past year. Finally, we mentioned the hedge fund sentiment around each stock, as of Q3 2024. The stocks are arranged in ascending order of their hedge fund sentiments.
At Insider Monkey we are obsessed with 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 close up of a complex looking PCB board with several intergrated semiconductor parts.
Advanced Micro Devices, Inc. (NASDAQ:AMD)
% Decline In 1 Year: ~36.7%
Number of Hedge Fund Holders: 107
Advanced Micro Devices, Inc. (NASDAQ:AMD) operates as a semiconductor company worldwide. The company’s stock has witnessed a decline of ~36.7% over the past year as investors are concerned about its competitive positioning. While to improve its share in the broader market it can elevate its spending levels, this might weigh over its margins and bottom line. Furthermore, there are concerns about its ability to be at par with Nvidia. However, Advanced Micro Devices, Inc. (NASDAQ:AMD) has released strong Q4 results, with healthy growth in client and data center revenue and a recovery in gaming revenue, says Morningstar.
The firm expects Advanced Micro Devices, Inc. (NASDAQ:AMD) to achieve a top-line CAGR of 17% from 2025 to 2029. It has modeled 28% growth in 2025 and 14% average annual growth from 2026 to 2029 as the company’s data center GPU business takes off in the AI applications. Furthermore, Advanced Micro Devices, Inc. (NASDAQ:AMD) managed to gain market share in the PC CPU market, with Intel’s manufacturing prowess witnessing numerous challenges.
Elsewhere, Wells Fargo analyst Aaron Rakers is bullish as the analyst believes that Advanced Micro Devices, Inc. (NASDAQ:AMD)’s stock is currently trading near relative valuation lows and provides strong risk-reward looking ahead into mid-2025. The analyst has pointed out the company’s ability to continue to fuel further EPYC server CPU share gains. White Falcon Capital Management, an investment fund manager, released its Q4 2024 investor letter. Here is what the fund said:
“During the year, we sold half of our stakes in Advanced Micro Devices, Inc. (NASDAQ:AMD) and Nu Holdings as they reached their intrinsic values. However, the decline in these stocks toward the end of the year provided us with an opportunity to add to our positions. In AMD’s case, the market has been disappointed by the company’s potential shortfall in AI chip revenues, which were previously forecasted to reach $10 billion in 2025. However, the factors required to justify the investment when the stock is priced at $220 per share are vastly different from those needed when the stock is at $120 per share. Yes, AMD’s AI chips and associated software are not competitive with Nvidia but this is now known and in the valuation. We believe this hyperfocus on AI ignores AMD’s other businesses where they continue to take advantage of Intel’s missteps. Importantly, AMD retains the potential to capture a small share of the AI chip market, which, given the market’s massive size, could be highly impactful for the company.”
Overall, AMD ranks 1st on our list of most oversold S&P 500 stocks in 2024. While we acknowledge the potential of AMD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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.
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Disclosure: None. This article is originally published at Insider Monkey.