We recently published a list of Forget the Magnificent 7: Analysts Talk about the ‘Big 10’ AI Stocks of 2024. Since Advanced Micro Devices, Inc. (NASDAQ:AMD) ranks 6th on the list, it deserves a closer look.
When the AI revolution began with the launch of ChatGPT, investors began pouring money into a handful of companies that are leading the development of AI technologies, thanks to their position in the industry and their infinite free cash flow. Market analysts quickly began to point out the phenomenon of market gain concentration, where only a few stocks accounted for the bulk of the market’s gains. This technology concentration remains strong to this day, as all of the significant AI and Cloud technologies we see in the news are developed, acquired, or commercialized by large-cap technology companies that we all know. Bank of America analyst Michael Hartnett recently said in a report that the S&P 500 has gained about 12% year to date, but if you remove 10 technology companies from the equation , these gains were reduced to only 3.6%. Hartnett calls these companies the “AI Big Ten” group.
What about the Magnificent Seven group of stocks that has continued to make headlines in 2023 and early 2024? Hartnett calculated that the market as a whole has gained just 4.9% so far this year if these seven stocks are taken out of the equation. There is a third group of stocks that most investors ignore: the Hedge Fund Top 30. These 30 stocks include the Magnificent Seven as well as 23 other promising stocks. These 30 stocks returned 53.2% in 2023, 20.2% over the first 5 months of 2024 compared to 11% for the S&P large cap index. You can view the latest list here: 31 Most Popular Stocks Among Hedge Funds.
In this article, we’ll look at the 10 big AI stocks highlighted by Bank of America analyst Michael Hartnett in his report. For each stock, we have reported the number of hedge fund investors at the end of the March quarter. Why are we interested in stocks that hedge funds are piling into? The reason is simple: our research has shown that we can outperform the market by imitating the stocks selected by the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each 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 integrated semiconductor parts.
Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of hedge fund investors: 124
AMD is one of the leading AI semiconductor stocks. BofA added the stock to its Big 10 AI list, with the stock gaining about 16% so far this year.
Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) fell recently after Morgan Stanley’s Joseph Moore downgraded the stock from Overweight to Equalweight, saying the Street’s expectations for the AI business of Advanced Micro Devices, Inc. (NASDAQ:AMD) are “too high”. high.” The analyst added that Advanced Micro Devices, Inc. (NASDAQ:AMD) is expensive compared to peers like NVDA and AVGO. The analyst, however, kept his $176 price target on the stock.
The average analyst estimate for Advanced Micro Devices, Inc. (NASDAQ:AMD) is $187.2, showing 17% upside potential. Wall Street analysts expect Advanced Micro Devices, Inc. (NASDAQ:AMD) to grow 32.50% this year and 59% next year. Over the next five years, growth will then moderate to 32% per year, which remains high. Based on Advanced Micro Devices, Inc.’s (NASDAQ:AMD) 2025 EPS forecast, the stock is trading at around 28.6 times forward P/E ratio, which is not high considering Advanced Micro Devices, Inc. (NASDAQ:AMD) EPS Forecast Growth Trajectory and Catalysts.
Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ: AMD) in its Q4 2023 Investor Letter:
“Advanced Micro Devices, Inc. (NASDAQ: AMD) is a global semiconductor chip manufacturer specializing in central processing units (CPUs), considered the essential component of most computing devices, and graphics processing units (GPUs), which accelerate operations executed on the CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to technological lag and high market share loss by compared to its competitors Intel and Nvidia. Our research found that the changes and investments made by current management under CEO Lisa Su ultimately resulted, over several years, in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to those of Intel. We invested with the belief that AMD’s valuation at that time did not reflect the potential for its technology leadership to generate significant market share gains and earnings improvement. This thesis has been ongoing for several years. During the quarter, AMD revealed more details about its upcoming GPU products aimed at the AI market. The stock reacted positively to expectations that AMD’s GPU servers would be a viable alternative to Nvidia. Although we reduced our exposure to AMD as part of our risk management practice, we maintained a position in the stock. We believe AMD will continue to gain market 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 6th on Insider Monkey’s list titled Forget the Magnificent 7: Analysts Talk about the ‘Big 10’ AI Stocks of 2024. While we recognize the potential of Advanced Micro Devices, Inc. (NASDAQ:AMD), our conviction lies in the belief that under the radar AI stocks hold more promise in terms of higher returns, and this in a shorter period of time. If you’re looking for an AI stock that’s more promising than Advanced Micro Devices, Inc. (NASDAQ:AMD) but is trading at less than 5x earnings, check out our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Initiated Monkey.