We recently published a list of the 10 Best AI Momentum Stocks to Benefit from Volatility Ahead. Since Advanced Micro Devices Inc. (NASDAQ:AMD) ranks 7th on the list, it deserves a deeper look.
Wolfe Research has joined the ongoing market correction chorus as more and more experts warn of volatility ahead amid soaring valuations led by AI. Wolfe Research, however, believes investors would stick to mega-cap tech stocks to survive through this volatility.
“Our sense is that volatility will continue to pick up over the summer. However, we expect this to generally benefit the Mag 7, secular growers, and the overall Momentum Trade in the weeks ahead.”
Wolfe analysts expect investors to pile into quality stocks that “they can count on” amid economic “data surprises” ahead. The firm expects “these themes to continue to benefit from an environment in which growth is slowing but the Fed is expected to kick off a deep cutting cycle.”
“Further, our sense is that the biggest companies driving these trends will once again put up very solid results during 2Q earnings season.”
Since Wolfe believes investors are poised to stick with Magnificent Seven stocks in the upcoming volatility and called The Information Technology (SPG1200-45)(XLK) and Communication Services (XLC) “big winners”, we picked Mag. 7 stocks and top 3 AI stocks from the XLK for this article. 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
AMD is a notable part of the Technology Fund (XLK), which is a “big winner” this year according to Wolfe, and many Wall Street analysts are growing bullish on the stock.
Bank of America thinks AMD is one of the best best of breed stocks to buy for the third quarter of 2024.
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 7th on Insider Monkey’s list titled 10 Best AI Momentum Stocks to Benefit from Volatility Ahead. 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.
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Disclosure: None. This article is originally published at Insider Monkey.